NCUA’s Harper: Joining the CLF Will Bolster the System’s Access to Liquidity

ALEXANDRIA, Va. (May 28, 2020) – Credit unions can significantly bolster the entire system’s access to emergency liquidity by joining the Central Liquidity Facility, National Credit Union Administration Board Member Todd M. Harper said.

“Through my experiences in working on Capitol Hill during the last financial crisis, I knew disruption in the financial markets could quickly turn into liquidity shortfalls,” Board Member Harper said. “I strongly encourage all consumer credit unions that do not already belong to or have access to an agent for the Central Liquidity Facility to join as soon as possible. By joining the CLF, you will be demonstrating the best of the cooperative nature of the credit union movement.”

Harper made these remarks remotely during the Credit Union National Association’s Examination and Supervision Committee Meeting on Thursday, May 21. The full text of his remarks is available on the NCUA’s public website.

During his speech, Harper stated that the CARES Act temporarily makes it easier for credit unions to join the Central Liquidity Facility, including corporate credit unions to act as agents for consumer credit unions. The law also eased some restrictions around getting a liquidity loan and temporarily increased the capacity of the CLF from 12 times its capital to 16 times its capital through the end of 2020. According to Harper, this represents an opening to bolster the credit union system’s access to external liquidity.

Continue Focusing on Members

Harper also outlined the financial impact COVID-19 is having on the broader economy. He noted the sharp and rapid deterioration in labor market conditions, lost wages, and heightened uncertainty means the economy may not return to pre-coronavirus levels for some time. This will necessitate credit unions continuing to work with their members who have been affected by the pandemic’s financial and economic disruptions, he said.

“Consistent with safety and soundness and consumer financial protection, I encourage you to continue to develop products and services aimed at helping families pay for essential needs,” Harper said. “By focusing on your members, making responsible loans, accommodating their needs, your members will remember it in the long term.”

PCA Changes Will Provide Flexibility

Harper also discussed the NCUA Board’s recent changes to the agency’s prompt corrective action requirements. Approved during the Board’s May meeting, the first amendment will waive the earnings transfer requirement for credit unions that fall from well capitalized to adequately capitalized. This change will allow the credit union to use the capital to help their members. The second change creates a streamlined net worth restoration plan for credit unions that become undercapitalized because of an inflow of shares.

Both the earnings transfer waiver and the net worth restoration plan provisions will expire at the end of 2020.