As Prepared for Delivery on March 18, 2021
As we have heard, the CARES Act made critical amendments to the Central Liquidity Facility (CLF) provisions of the Federal Credit Union Act. In April 2020, the Board approved the interim rule that supplements the legislative changes resulting from the CARES Act. The interim rule enhanced the ability of the CLF to serve as a liquidity backstop for the nation’s credit union system. It made it easier for credit unions to join the facility as a regular member or through a corporate credit union as part of an agent relationship, and access emergency liquidity should the need arise. It also relaxed the withdrawal requirements.
Today’s proposed rule simply amends the CLF Regulations to reflect the extensions enacted by the Consolidated Appropriations Act, 2021. I will be supporting it.
I am fully aware that right now most credit unions are awash in short-term liquidity, so today’s proposed changes to the CLF may not attract a lot of attention. But if 2020 has taught us anything, it’s that circumstances can change quickly.
During the April 2020 Board meeting, all three board members urged credit unions to join the CLF. While I echo their appeal, I’d like to emphasize our responsibility to ensure the CLF is a compelling option for credit unions of all sizes.
Formed in 1979 when credit unions could not access the Federal Reserve’s Discount Window, Congress knew that having a reliable source of liquidity would improve the financial stability of credit unions in general. Its legislative purpose included, “to encourage savings, support consumer and mortgage lending and provide basic financial resources to all segments of the economy.” Just a few years after its formation, the CLF proved its worth during the Penn Square crisis and helped prevent the failure of over 150 credit unions.
As a mixed-ownership government corporation, the CLF is managed by the NCUA. Credit unions supply the capital upon which its borrowing capacity is determined. The CLF’s source of funding is direct from the government’s financing bank. Unlike the Federal Home Loan Bank, which raises its borrowings in the open market. In a crisis, borrowing directly from the Federal Financing Bank is an important distinction.
The CLF can be a powerful tool in an emergency, but we must plan now. Ensuring the CLF is fully prepared for the future will require making it useful to credit unions of all sizes. This can only be done with focused and full-time leadership.
The role of CLF president is unfilled at this time, and while I’m grateful to the staff for their management, the CLF cannot be just another project. Mr. Chairman, the NCUA should begin the work of filling the position of President of the CLF as soon as practical. Can we count on you moving this forward?
Mr. Chairman, this concludes my remarks.