The Central Liquidity Facility (CLF) with Expert Steve Farrar

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In this week's episode I chat with my team member and form CLF Vice President Steve Farrar.

We discuss:

• Purpose of CLF
• Two briefings to NCUA Board in 2022
• Operations of the CLF
• November 2021 Letter to Congress - expiration of temporary improvements
• CLF Borrowing Ability
• Natural Person Membership
• Agent Membership
• Borrowing from the CLF

and much more.

Below are excerpts of NCUA Chairman Todd Harper's statement on the CLF after the October 2022 Board meeting:

"...With more than $29 billion in borrowing capacity, $1.2 billion in total assets, and nearly 4,000 regular and agent members, the CLF is a vital source of emergency liquidity within the credit union system. However, the pending expiration of the temporary CLF enhancements authorized by Congress at the start of the COVID-19 pandemic remains a very real concern.

We already know of several credit unions experiencing liquidity issues in recent months, including some with more than $1 billion in assets. And, with ongoing inflationary pressures and likely continued interest rate increases, there is the potential for strong headwinds slowing the economy and increasing stress on households and financial institutions. Those headwinds could soon result in even more credit unions encountering liquidity issues. So, the CLF must stay alert and ready to support the credit union system and the Share Insurance Fund.

For the CLF to work best, we need a flexible agent member option. By permitting corporate credit unions to become agent members for groups of credit unions, rather than requiring them to join for their entire membership, the CLF becomes a more affordable and attractive option for corporate credit unions to participate in. Without that agent membership, credit unions with less than $250 million in assets will be much less likely to have access to a federal liquidity backstop when they need it.

And, without legislation to extend the temporary CLF enhancement provisions, there will be a $9.7 billion reduction in reserve liquidity for the credit union system at the end of 2022. Likewise, the 3,648 credit unions with less than $250 million in assets that now have access to the CLF through their corporate credit unions will lose a liquidity lifeline. These credit unions include most of our nation’s 509 minority depository institutions.

We know through the painful lessons of the financial crisis more than a decade ago how quickly liquidity can dry up during periods of economic and financial stress. While we are grateful to Congress for allowing the CLF enhancements of the last few years, there is a real need to keep in place the ability of corporate credit unions to serve as an CLF agent for a subset of their members. That authority will allow us to provide emergency liquidity quickly when needed...

Before a storm starts, we need to ensure the liquidity pipelines of the credit union system remain in good working order. That is why my fellow Board members and I continue to call on Congress to make permanent the CLF agent member enhancement. I thank Vice Chairman Hauptman and Board Member Hood for their steadfast efforts in support of this critical legislative goal."