Compliance Blog

 Written By Michael Coleman, Regulatory Compliance Counsel

NCUA Letter to Credit Unions 12-CU-10. This week, NCUA released Letter to Credit Unions 12-CU-10 which concerns the Central Liquidity Facility (CLF) and provides some information concerning three things:

• Changes to credit unions’ access to the CLF following the closure of the U.S. Central Bridge Corporate Federal Credit Union (U.S. Central Bridge)
• NCUA’s proposed rule concerning emergency liquidity
• An upcoming August 14, 2012 NCUA webinar “CLF and Your Credit Union’s Contingent Liquidity”

Access to the CLF.  NCUA enclosed a frequently asked questions document with 12-CU-10 which provides some good answers to questions on the change in credit unions’ access to the CLF. Here are a couple of the Q&A’s:

“Will my credit union have access to the CLF in the future?

U.S. Central Bridge currently holds CLF stock on behalf of the whole agent group, but U.S. Central Bridge will wind down and close by October 31, 2012.  When U.S. Central Bridge redeems CLF stock as part of the closure process, credit unions currently enjoying CLF access through the agent relationship will no longer have this source of backup liquidity. As part of its orderly resolution, U.S. Central Bridge will discontinue its role as CLF agent-group representative in conjunction with the wind down of operations.   Accordingly, the existing agent group arrangement will also terminate.  When that occurs, natural person credit unions that are not regular CLF members will need to evaluate the possibility of establishing new membership arrangements, as either a regular member or with a new agent, such as another corporate credit union, if they intend to utilize the CLF as their contingent liquidity source.  The closure of U.S. Central Bridge on October 31, 2012, necessitates a corresponding redemption of CLF stock, which NCUA expects to occur no later than October 25, 2012.”

“Could the Federal Reserve serve as my new federal liquidity backstop?

Yes.  A credit union can use the Federal Reserve Discount Window to meet its contingent liquidity needs.  However, only credit unions holding liabilities subject to reserve requirements may establish borrowing privileges at the Federal Reserve.  It can take up to a week for an institution with no Federal Reserve relationship to file the necessary paperwork and pre-position collateral to borrow.  Purchasing stock in a regional Federal Reserve Bank is not necessary to establish borrowing privileges at the Discount Window.  Accessing the window requires filing an application with a Federal Reserve Bank and pre-positioning collateral.  For a complete discussion of the process of accessing the Discount Window, see http://www.frbdiscountwindow.org/index.cfm.”

The FAQ document provides some useful information on the CLF, how credit unions can become direct members, and how the CLF functions, among other things. It is worth a read.

NCUA’s proposed rule. At the July 24^th NCUA Board Meeting, the NCUA Board approved a proposed rule on credit union’s maintaining access to emergency liquidity. As 12-CU-10 notes, the proposed rule’s requirements are based on the credit union’s asset size and would require credit unions to establish plans to meet emergency liquidity needs. The public comment period for the proposed rule ends September 28, 2012. Take a look at our July 31, 2012 blog post for more details about the proposed rule and its requirements. The FAQ document enclosed with 12-CU-10 also provides a good summary of NCUA’s rationale behind the proposed rule and its requirements. NAFCU members can also download NAFCU Regulatory Alert 12-EA-22 which provides an overview and seeks comment regarding the proposed rule.

The NCUA Board had previously issued an advance notice of proposed rulemaking (ANPR) at its December 2011 Board Meeting concerning access to emergency liquidity, you can download NAFCU’s February 21, 2012 comment letter on the ANPR here.

NCUA webinar. NCUA will host a free webinar entitled “CLF and Your Credit Union’s Contingent Liquidity” on Tuesday, August 14, 2012 at 2:00pm Eastern. You can register for the webinar here. NCUA plans to discuss both the changes in access to the CLF as a result of the upcoming closure of the U.S. Central Bridge as well as the proposed rule on maintaining access to emergency liquidity. See this NCUA press release for some more details on the webinar.