CLF Prez Gives Presentation: Facts, Membership, Insights & More

National Credit Union Administration (NCUA) Central Liquidity Facility President Anthony Cappetta provided a presentation this week to CEOs on a California and Nevada Credit Union Leagues-hosted online discussion regarding how credit unions can decide whether borrowing from the CLF is right for them.

For questions, email clfmail@ncua.gov. Here are highlights:

• The CLF is a backup source of liquidity for state and federally chartered credit unions (not a substitute for primary liquidity sources). It has proven helpful during protracted periods of liquidity.
• Member credit unions contribute capital to support its operating expenses and retained earnings, and the CLF pays market interest rates on this contributed capital.
• Being a type of liquidity insurance, the CLF borrows from the U.S. Treasury Department and brings “external liquidity” to the credit union industry by making loans (called “advances”) to credit unions and the entire credit union system.
• Currently, 385 U.S. credit unions within three different asset sizes are members of the CLF (different regulations apply): $50 million and below; $50 million – $250 million; and more than $250 million. Membership is voluntary.
• The CLF offers three different types of advances: 1) short-term balance sheet adjustment advances for up to 90 days or longer; 2) seasonal credit for seasonal events; and 3) protracted adjustment credit for emergency circumstances.
• The CLF cannot hold collateral, so it takes first-priority secured interest in collateral pledged by credit unions to secure the “advances” (loans).
• A CLF member credit union does not have to be a member of a corporate credit union. However, corporates are important in the administration of forms the CLF uses to make sure the facility has first-priority secured interest in pledged collateral by credit unions.
• Borrowing rates for “advances” from the CLF are set by the U.S. Treasury Department. They are either the higher of prime credit or the Federal Financing Bank’s (FFB) rate (what treasury notes/bonds are trading, plus one-eight) — plus a small fee for collateral management.
• Requirements for an advance: 1) there must be a valid liquidity need from a member credit union (credit cannot be used to expand a credit union’s investment portfolio; 2) the credit union must be creditworthy.
• Borrowing timeline: The CLF is not like the primary Federal Reserve discount window facility (not pre-positioning collateral or a “no questions asked” lender). There is a timeline to the “advance” borrowing process. Depending on the size of the advance (if it’s large), it may have to get the CLF board of directors’ approval and/or the U.S. Treasury Department’s approval (either of which could take up to three days).

The CLF’s borrowing capacity is close to $20 billion — so it is well established. However, because emergency liquidity isn’t an everyday need for many smaller credit unions just yet, they haven’t established a relationship with either the CLF or the Federal Reserve’s discount window facility.’

They may want to — because if many credit unions are borrowing from the Federal Home Loan Bank system (FHLB) or corporate credit unions all simultaneously, these smaller credit unions would most likely need to access either the CLF or the Fed’s discount window facility.