Compliance Blog

Written by Bernadette Clair, Regulatory Compliance Counsel

NCUA’s proposed rule requiring federally insured credit unions (FICUs) to plan for or maintain emergency liquidity has been published in the Federal Register.  The proposed rule, approved at NCUA’s July 24^th Board Meeting, is intended to address liquidity concerns arising out of the anticipated closing of U.S. Central Bridge Corporate Credit Union (U.S. Central Bridge) later this year in October 2012.

Credit unions that have access to the Central Liquidity Facility (CLF) by belonging to a corporate credit union that is part of the agent group headed by U.S. Central Bridge will no longer have this source of backup liquidity once U.S. Central Bridge closes.  Subsequently, these credit unions will need to establish alternative means of backup liquidity, such as finding another agent through which to maintain membership in the CLF, or maintaining membership in the CLF directly.

 The proposed rule sets forth a three-tiered approach based on the asset size of the FICU. Here are the highlights:

Credit unions under $10 million in assets would have to maintain a written liquidity policy approved by their board and a list of contingent liquidity sources that can be employed under adverse circumstances.

Credit unions with $10 million or more in assets would have to establish a formal contingency funding plan (CFP) that clearly sets out strategies for addressing liquidity shortfalls in emergency situations.  The CFP must address, at a minimum, the following:

• The sufficiency of the institution's liquidity sources to meet normal operating requirements as well as contingent events;
• The identification of contingent liquidity sources;
• Policies to manage a range of stress environments, identification of some possible stress events, and identification of likely liquidity responses to such events;
• Lines of responsibility within the institution to respond to liquidity events;
• Management processes that include clear implementation and escalation procedures for liquidity events; and
• The frequency that the institution will test and update the plan.

 Credit unions with more than $100 million in assets would, in addition to maintaining a CFP, have to demonstrate access to at least one of the following three options for a backup federal liquidity source:  becoming a member of the CLF; becoming a CLF member through a CLF agent; or establishing direct borrowing access to the Federal Reserve’s Discount Window.

NAFCU’s Regulatory Affairs team is preparing a Regulatory Alert for members.  The deadline for submitting comments on the proposed rule is September 28, 2012.