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Maintaining Access to Emergency Liquidity

Another comment letter was filed by the Missouri Credit Union Association (MCUA) and the Credit Union National Association (CUNA) with the National Credit Union Administration (NCUA) regarding proposed changes to emergency liquidity from the Central Liquidity Facility (CLF). MCUA stongly opposes the final rule on emergency liquidity and states there is already interagency guidance on liquidity policies, plans and procedures that took effect in May 2010. The other regulators, to MCUA's knowledge, have not found the need to issue regulations on emergency liquidity.

NCUA had not provided sufficient rationale for the proposal and MCUA did not support a requirement for credit unions to secure access to specific types of emergency liquidity beyond what other federally insured depository institutions are required to do.  To CUNA's knowledge, NCUA is the only federal financial regulator pursuing a rule on emergency liquidity at this time. Are credit unions really that much more risky than their commercial banking counterparts?

If despite the fact that the legal underpinnings of the proposal were not sufficiently detailed a final rule is pursued, CUNA and MCUA urged a number of changes.

  • The definition of smaller credit unions for purposes of reduced regulatory burdens under any liquidity final rule should dovetail with the agency’s revised definition of “small entity” that is under review by the NCUA Board now.
  • For larger credit unions, we feel the agency should not only utilize asset size but also indicators such as loan-to-share ratios in determining whether additional liquidity policy and federal liquidity source requirements should be imposed.  
  • The FHLBs should be a permissible source of emergency liquidity for any credit union that has sufficient excess collateral so that even in adverse conditions it would meet FHLB collateral requirements for the amount of necessary emergency liquidity.
  • However, each FHLB should be required to provide assurances to NCUA that they can and will be able to provide emergency liquidity to eligible member credit unions. This agreement should be formalized under a memorandum of understanding between NCUA and each of the FHLBs.  Absent such an agreement, a FHLB should not be included as a permissible emergency liquidity source for credit unions.
  • NCUA should refrain from imposing Basel III type requirements on credit unions. 

CUNA’s System Liquidity Task Force has been considering the role and future of the CLF. As stated in its comment letter, CUNA believes the CLF has utility, and recognizes the important role that it played during the financial crisis as NCUA developed its course of action regarding corporate credit unions.

However, with the demise of U.S. Central Bridge, MCUA and CUNA want to work with NCUA to develop improvements, a number of which would be legislative, such as to remove the requirement for stock subscriptions to the CLF and to facilitate the ability of credit unions to use the CLF as readily as institutions are able to use the Federal Reserve’s Discount Window.