Letters to Credit Unions 20-CU-08 Enhancements to CLF Membership & Borrowing Authority
NCUA’s LTCU 20-CU-08 provides credit unions information about changes to the Central Liquidity Facility (CLF) as a result of the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The operations of the CLF are governed by Title III of the Federal Credit Union Act (FCUA) and § 725 of NCUA’s rules.
Legislative Changes to the CLF
The CARES Act made several temporary changes to Title III of the FCUA that will sunset on December 31, 2020:
- The CARES Act increased the CLF’s borrowing capacity to 16x the subscribed capital stock and surplus (retained earnings) of the CLF.
- The CARES Act temporarily provides NCUA authority to allow agents subscribe to CLF stock on behalf of a smaller subset of members rather than the existing requirement of a subscription for ALL members.
- The CARES Act changed the definition of “liquidity needs” to include the needs of any credit union: allowing corporate credit unions to borrow for their own needs.
- The CARES Act removed the prohibition against NCUA approving borrowing intended to “expand credit union portfolios,” giving NCUA more flexibility and discretion to approve loans for credit unions that have made a reasonable effort to first utilize primary sources of funding.
Regulatory Changes to the CLF
NCUA has issued an interim final rule making additional changes to the CLF. Some of the NCUA changes are temporary and some are permanent. NCUA has:
- Permanently eliminated the 6-month waiting period for a new member to receive a loan – Under the new rule, new regular and agent members can borrow as soon as they complete the new member documents and pay the required capital stock amount.
- Temporarily amended the waiting period for a credit union to terminate its CLF membership – A credit union seeking to withdraw from CLF membership anytime until December 31, 2020, may do so on 6 months written notice. Between December 31, 2020 and December 31, 2021, a credit union may withdraw immediately upon written notice. After December 31, 2021, the temporary termination provisions will expire, and a credit union could terminate its membership after 6 or 24 months under the pre-COVID existing rules.
- Permanently eased collateral requirements – Under the new rule, the amount of collateral required for an advance will be determined from the CLF’s collateral margins table, published on the NCUA’s website. The required collateral percentages vary based on different types of assets which may result in lower collateral requirements in some cases.
- Temporarily permitting an agent member to borrow for its own liquidity needs – Corporate credit unions may borrow from the CLF subject to the same creditworthiness and liquidity-need criteria as for all other members.
Complete information on the CLF is available on NCUA’s CLF webpage on the agency’s website.