Central Liquidity Fund Interim Final Rule
At the last National Credit Union Administration (NCUA) Board meeting, the NCUA Board approved an interim final rule to update NCUA’s regulations regarding the Central Liquidity Facility (the Facility or CLF). The need for the updates grew out of the Consolidated Appropriations Act, 2021 (CAA). The CAA extended several enhancements to how the CLF operates—enhancements arising out of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The interim final rule was published in the Federal Register on March 24, and most of the rule became effective on that date. Any comments on the interim final rule are due to the NCUA on or before May 24, 2021.
The CLF is a mixed-ownership government corporation that is part of NCUA. It serves as a liquidity source for credit unions that become members of the Facility. The NCUA Board regulates how the CLF operates, including establishing rules for membership and initial borrowing privileges.
The CARES Act amended the Federal Credit Union Act to enhance credit union access to the CLF. The CARES Act amendments did several things. For example, they temporarily improved the CLF’s borrowing capacity. They eased the capital stock subscription requirement, and they created additional flexibility for corporate credit unions permitting them to access the CLF to meet their own liquidity needs. The CARES Act provisions were set to sunset December 31, 2020. NCUA published an interim final rule in April 2020 implementing some of these CARES Act requirements, although some provisions of the April 2020 interim rule were intended to have no expiration. Section 540(a)(2) of the CAA extended the application of these expiring CARES Act requirements until December 31, 2021.
Some of the notable parts of the current interim final rule include:
- Extending the removal of the phrase “primarily serving natural persons” from the definition of liquidity needs in section 725.2(i)(1) until December 31, 2021;
- Extending the NCUA Board’s ability to select which credit union members are covered by an agent’s membership in the Facility until December 31, 2021—an act that permits corporate credit unions acting as agents to essentially subscribe up to the maximum it can afford instead of requiring them to subscribe to the capital stock of the CLF in an amount equal to one-half of 1 percent of the paid-in and unimpaired capital and surplus of all the corporate credit union’s or corporate credit union group’s natural person credit union members;
- Extending the ability of an agent member of the Facility to access the CLF for its own liquidity needs until December 31, 2021; and
- Extending the ability of Facility members to immediately withdraw from the CLF until December 31, 2022, as long as certain criteria are satisfied.
As with the April 2020 interim final rule, there were two things that were not addressed in the current interim final rule because they resulted from changes to the Federal Credit Union Act. First, the interim final rule did not address the temporary increase to the CLF borrowing capacity from twelve times to sixteen times of the subscribed capital stock and surplus of the Facility. Second, it did not address the temporary changes about how the NCUA Board is required to evaluate applications for credit from the Facility. Both Federal Credit Union Act requirements were amended by section 4016 of the CARES Act and were set to expire December 31, 2020. As a result of section 540 of the CAA, both requirements will stay in place until December 31, 2021.
For more detailed guidance about the interim final rule, please see this recent NAFCU Final Regulation.