Liquidity

HAS THE NCUA PROVIDED MORE EXPLANATION ON THE CLF AND THE RECENT CHANGES?

Yes. The NCUA has released an on-demand webinar on the regulatory and legislative enhancements made to the Central Liquidity Facility (CLF). The webinar also explains how the facility works and how it fits within a credit union’s broader liquidity risk-management program. The webinar is approximately 40-minutes long and is available on the agency’s website. Participants should allow pop-ups from this website.

Are Corporate Credit Unions now able to join the CLF and act as agents for their member credit unions with assets less than $250 million?

Yes. NCUA’s Letter to Credit Unions Establishment of CLF Agent Memberships (20-CU-14) provides information on corporate credit unions becoming members of the Central Liquidity Facility (CLF). As agent members, the corporate credit unions have purchased the CLF capital stock for their member credit unions with assets less than $250 million. Therefore, all credit unions with assets less than $250 million that are members of a corporate credit union (covered credit unions) are now eligible to apply for a loan from the CLF. (5/11/20).

Have there been any changes to the Central Liquidity Facility (CLF)?

Yes, NCUA has issued Letter to Credit Unions (20-CU-08) that provides information on the enhancements to CLF Membership and Borrowing.

Can a credit union use the NCUA’s Central Liquidity Facility (CLF) for contingent liquidity purposes?

Yes, access to the CLF is voluntary and open to all credit unions that join the CLF and purchase a prescribed amount of stock. There are two types of membership: natural-person credit unions (a “regular” member) and corporate credit unions (an “agent” member). Natural-person credit unions can borrow from the CLF either directly as a regular member or indirectly through an agent member. The purpose of the CLF is to improve general financial stability by providing credit unions a source of loans to meet their liquidity needs and encourage savings, support consumer and mortgage lending, and provide basic financial resources to all segments of the economy. Information about borrowing from the CLF, including how to become a member, is available online

Source: NCUA Actions Related to COVID-19; LCU 20-CU-02

What other options do credit unions have to manage any impact on liquidity?

Credit unions should evaluate their contingent liquidity plans in light of the current environment. They should also monitor their standard sources of funding to determine if a contingent source from a backup provider may be necessary and if so become reacquainted with how such access works. For credit unions with access, the Federal Reserve’s ‘discount window’ is available to assist with eligible depository institutions, including credit unions. Federal Reserve lending to depository institutions plays an important role in supporting the liquidity and stability of the banking system and the effective implementation of monetary policy. By providing ready access to a backup source of funding, the discount window helps depository institutions manage their liquidity risks efficiently and avoid actions that have negative consequences for their customers. Thus, the discount window supports the smooth flow of credit to households and businesses. Providing liquidity in this way is one of the original purposes of the Federal Reserve System and other central banks. Additionally, credit unions that are members of the Central Liquidity Facility can borrow funds for their liquidity needs and membership is open to all credit unions.

Source: NCUA Actions Related to COVID-19; LCU 20-CU-02

What changes has the Federal Reserve made to encourage use of the Discount Window?

The Federal Reserve Board lowered the primary credit rate by 150 basis points to 0.25 percent, effective March 16, 2020. This reduction in the primary credit rate reflects both the 100 basis point reduction in the target range for the federal funds rate and a 50 basis point narrowing in the primary credit rate relative to the top of the target range. Narrowing the spread of the primary credit rate relative to the general level of overnight interest rates should help encourage more active use of the window by depository institutions to meet unexpected funding needs.

The Board also announced that depository institutions may borrow from the discount window for periods as long as 90 days, prepayable and renewable by the borrower on a daily basis.

The Federal Reserve continues to accept the same broad range of collateral for discount window loans.

Source: Federal Reserve 

Where can I get more information regarding access to and borrowing from the Fed’s Discount Window?

The Federal Reserve Bank of San Francisco’s brochure includes information on eligibility to borrow, how to get started, pledging collateral, requesting an advance, etc. You can find the Discount Window brochure here.