NCUA Vice Chairman Kyle S. Hauptman during a meeting of the NCUA Board.
As Prepared for Delivery on November 21, 2024
Last year was the first full year for the Central Liquidity Facility (CLF) as its own distinct entity with its own President and staff. Separating the CLF from NCUA operations provides focus and commitment to this important tool.
During the financial crisis, the CLF played a critical part in the solvency of the credit union system and the Share Insurance Fund (SIF). CLF funds were a substantial buffer for the American taxpayer. In fact, the CLF advanced credit unions and the system to just over $18 billion. Without it, there is no question, the credit union system would be significantly different today.
CLF management kept the budget to under five percent with approximately 93 percent allocated for pay and benefits. There are no new positions anticipated in 2025 or 2026. And the one position approved for 2024 – which has not been filled – will be offset by a reduction in a contracted resource, making it budget neutral.
Overall, the budget is relatively lean by some metrics compared to growing CLF membership, the operations, the capital managed, and the service provided. The operating expenses-to-asset ratio is projected to be 0.22 percent for 2024. I should note that this CLF budget is admirably lean compared to the proposed NCUA Budget we’re discussing tomorrow. If the NCUA proposed staff budget increase looked anything like this CLF budget increase, then tomorrow’s budget hearing would be a lot easier.
I want to commend the CLF staff for being respectful of the people whose money we’re spending. Any organization has ways they can spend more money, some of which might even be good ideas. But NCUA has to live in the same world that credit unions do. That is to say, a world with limits.
This is the kind of planning credit unions must do. It is great to see budgets that are respectful of the folks paying the bill.
The CLF’s effectiveness is dependent upon credit unions being members of the CLF participation. Last year, I emphasized the need to make applying for membership as simple as possible. Since then, the CLF took steps to improve the user experience by reorganizing the website. Management simplified and streamlined the application processes, including putting the word “application” on the website for the first time. Also, a minor thing but the CLF updated its phone messaging system to better guide callers, providing clearer information and direction.
We at the NCUA continue to politely suggest that Congress consider reauthorizing the agent membership issue in the Federal Credit Union Act so that corporate credit unions are again able to join the CLF on behalf of a subset of their members. That reauthorization would protect taxpayers and wouldn’t cost Congress a single dollar.
Back when the Congress did authorize the agent membership, an additional 3,323 credit unions with less than $250 million in assets were CLF members, thus allowing the vast majority of credit unions to access emergency liquidity.
Following the expiration of the provisions, membership fell and 67 percent of all credit unions and over 95 percent of credit unions with assets less than $250 million lost access to the CLF. Now it’s true that during the COVID crisis, the CLF wasn’t used much because liquidity didn’t become a major concern due the flood of cash sloshing around the credit union system.
I am pleased that in 2025 the CLF initiatives will continue to focus on growing membership through industry and stakeholder outreach (including the corporates and the leagues) and increasing access to back-up sources of liquidity.
Management is also planning to further improve outreach in 2025 and 2026 by target marketing to those natural person credit unions that either require an additional backup source of liquidity per regulations (i.e., they are getting close to, or are at, the $250 million requirement) or in management’s assessment would greatly benefit from one.
I do recognize that as CLF membership grows, so will the demands for managing it, and we must remain prepared to serve in times of systemic liquidity stress.