CLF Description and Operations
What is the CLF?
The CLF is an NCUA-operated, mixed-ownership U.S. government corporation. Owned by its member credit unions and managed by the NCUA Board, it is an instrument of the federal government. Congress created the CLF to improve the general financial stability of the credit union industry by meeting the liquidity needs of members in the same way that the Federal Reserve discount window provides access to loans for its eligible depository institutions. The CLF was created to serve as a back-up source of liquidity for both federal and state-chartered credit unions. For more information, see the CLF page on the NCUA’s website.
Close and return to topHow are the CLF’s operations funded?
The CLF is financially self-supporting. Its administrative and operational expenses are not supported by government funds. The CLF pays its expenses through earnings on its investments. The CLF may invest in obligations of the U.S. government and its agencies, deposits in federally insured financial institutions, and shares and deposits in credit unions.
Close and return to topWhere can I find the CLF financial statements?
Visit Monthly Reports to view the CLF’s financial statements.
Close and return to topIs there a limit on the total amount of funding available to the CLF to meet member credit union liquidity needs?
Yes. The CLF is subject to a maximum limit on its aggregate borrowing authority. By statute, the CLF’s maximum borrowing authority is limited to 12 times its subscribed capital stock and surplus per the Federal Credit Union Act.
Close and return to topHow does a Regular member test their borrowing capability with the CLF?
The Federal Financing Bank, the CLF’s primary source of funds, provides financing to help federal agencies manage their borrowing and lending programs and ensures that all federal government borrowing from the public is conducted through the U.S. Treasury and not through program agencies. Without an actual underlying liquidity need, the CLF is not permitted to conduct a test advance transaction involving funds from the Federal Financing Bank. However, the CLF does annually conduct a test transfer of funds, using a small dollar amount between itself and its members to verify the correctness of the delivery instructions of record. These are the same wire instructions used for actual liquidity advance requests. This testing process satisfies the NCUA regulatory requirement for “periodic testing to ensure contingent funding sources are readily available as needed” pursuant to NCUA regulations § 741.12(c).
Close and return to topWhat are the sources of CLF funds?
The two primary sources of funds for the CLF are its own balance sheet and its authority to borrow from the U.S. Treasury’s Federal Financing Bank. Generally, advances from the CLF are made using funds borrowed from the Federal Financing Bank. Each approved member advance is match-funded (paired with a borrowing that has the same dollar amount and terms) with a Federal Financing Bank advance. These transactions are structured with the same settlement and maturity characteristics.
For more information on the CLF’s access to the Federal Financing Bank, see Operating Circular 20-02 on the NCUA’s website.
Close and return to topCLF Membership
How does a natural person credit union become a member of the CLF?
There are two ways to become a member:
- Natural person credit unions can become regular members of the CLF by: 1) submitting an application for Regular membership to the Facility; and 2) subscribing to capital stock of the Facility as set forth in NCUA regulations § 725.3(a)(2). See Operating Circulars and Forms for more information.
- A natural person credit union can also be a member through membership in a corporate credit union that is an Agent member of CLF.
How does a Corporate Credit Union become a member of the CLF?
Corporate credit unions may join the CLF as an Agent member. To become an Agent, a corporate credit union must purchase membership capital stock on behalf of the credit union members in their Agent group that are not already Regular members.
Close and return to topHow long does it take the CLF to process a new member application?
Once the CLF receives a completed application it typically takes up to one week to process a new member application. Once your application has been processed, you will receive a welcome letter and an executed copy of the “NCUA Central Liquidity Facility Repayment, Security and Credit Reporting Agreement” (Appendix C-2).
Close and return to topHow does a credit union terminate CLF membership?
A credit union may unilaterally terminate its membership at any time by giving notice to the CLF of its intent to do so. The timing of the return of a credit union’s paid-in capital amount is subject to the statutory notice periods described in NCUA regulations § 725.6. A member of the Facility may terminate its membership:
- Six months after notifying the NCUA Board in writing of its intention to do so, if the member’s stock subscription constitutes less than five percent of total subscribed CLF stock, or
- Twenty-four months after notifying the NCUA Board in writing of its intention to do so, if the member’s stock subscription constitutes five percent or more of total subscribed CLF stock.
Is pre-positioning of collateral required for CLF membership?
No, pre-positioning of collateral is not required for CLF membership.
Close and return to topCapital Stock and Dividends
How can I calculate the amount of stock we need to maintain?
The amount of stock a member must purchase is calculated based on a percentage (one half of one percent) of the credit union’s paid-in and unimpaired capital and surplus. Members must transfer half of the funds required, based on the calculation above, to the CLF.
The remaining half of the required funds are placed on-call, which helps increase the credit union’s liquidity, and reduces the burden of joining the CLF. Members retain the remaining half of the required funds on call by investing them in liquid assets. These funds must remain available on call by the NCUA Board.
The number of new member shares and the amount due to subscribe is calculated using a six-month arithmetic average of paid-in and unimpaired capital surplus based on your credit union’s most recent Call Reports.
See Membership Capital Requirement Estimator for more information.
Close and return to topWhy does my quarterly statement show capital stock subscription and Liquidity Reserve and Clearing (LRC) account balances?
The capital stock subscription account reflects the initial paid-in capital which is adjusted on a yearly basis. Quarterly dividends are paid into your Liquidity Reserve and Clearing (LRC) account. The LRC accounts are member deposits, which represent amounts remitted by members over and above the amount required for membership or deposited there on their behalf.
Close and return to topHow often does the CLF adjust the required stock amounts?
Member capital stocks are adjusted annually, typically in March, to reflect changes in the member credit union’s paid-in and unimpaired capital and surplus. If the required paid-in portion is more than the capital stock currently on deposit, the CLF will first draw from its Liquidity Reserve and Clearing (LRC) account, and any remaining balance will be due from the member.
Close and return to topDoes the CLF pay dividends on capital stock?
Per NCUA regulations § 725.5(e), dividends will be paid on capital stock at such times and rates as are determined by the NCUA Board. The NCUA Board shall declare such dividends no less frequently than annually. All issued (paid for) capital stock shall share in dividend distributions without preference. Payment of dividends will be made by the issuance of capital stock to the member in the amount of the dividend.
Typically, dividend rates are declared after the quarter closes and account statements are published quarterly, typically one to two weeks after the quarter closes.
Visit Monthly Reports and select a financial statement to view a recent listing of dividend rates.
Close and return to topAdvances
What kind of advances can the CLF make?
As defined in 1795(a)(1) of the Federal Credit Union Act and in NCUA regulations § 725.2(7)(i), the CLF can make advances to meet liquidity needs of credit unions for:
- Short-term adjustment credits — Available to help a credit union meet temporary requirements for funds or to cushion more persistent outflows of funds, pending an orderly adjustment of credit union assets and liabilities. These advances are typically made for 90 days but are available for periods up to one year.
- Seasonal credits — Available for longer periods to help a credit union meet seasonal needs for funds that arise from a combination of expected patterns of movement in share and deposit accounts and loans. Season credit advances are generally available for periods of up to 270 days.
- Protracted adjustment credits — Available in the event of unusual or emergency circumstances of a longer-term nature resulting from national, regional, or local difficulties. The terms for these advances vary.
How does the CLF disburse funds to a borrower once an advance is approved?
For a Regular member, advances are wired directly from the Federal Financing Bank to the member in accordance with their delivery instructions on record. The Federal Financing Bank, which is the CLF’s primary source of funds, provides financing to help federal agencies manage their borrowing and lending programs and to ensure that all federal government borrowing from the public is conducted through the U.S. Treasury and not through program agencies.
For credit unions that are covered by a CLF Agent group, advances will be disbursed to the natural person credit union through their Agent member/corporate credit union.
Close and return to topWhat is the term of a CLF advance?
The maturity of a CLF advance will depend on the type of credit requested. Most advances are typically in the short-term adjustment credit category and will be made for a period of 90 days or less.
Close and return to topWhat rate does the CLF charge on advances?
By CLF policy, the CLF advance rate is set equal to the greater of the Federal Reserve Primary Credit rate or the Federal Financing Bank advance rate which is available to the CLF at the time of the request.
Advance rates from the Federal Financing Bank to the CLF are based on the current average market yield on outstanding obligations of the United States with remaining time to maturity of such advance. The Federal Financing Bank gets its rate from the U.S. Treasury. The shortest Treasury maturity used by the Federal Financing Bank for pricing loans is the three-month Treasury Bill. The Federal Financing Bank adds 0.125 percent to the current average market yield on outstanding obligations of the United States that have a maturity similar to the advance.
Thus, as an example, a 90-day advance request would be priced at the higher of the Federal Reserve Primary Credit rate or the three-month Treasury yield plus 0.125 percent.
For more information about the provisions that apply to advances from the Federal Financing Bank to the CLF, see Operating Circular 20-02 on the NCUA’s website.
Close and return to topHow quickly can a credit union request an advance after satisfying its membership requirements?
CLF members are eligible to request an advance once they complete the new member documents and pay the required capital stock amount. All advance requests are subject to the CLF’s liquidity needs and creditworthiness requirements and any advance is underwritten at the time of the request based on the applicant’s prevailing circumstances.
Close and return to topWhat is the maximum amount a credit union can borrow from the CLF?
A credit union can request any amount of funding it needs, up to its legal borrowing limit. For federal credit unions, refer to the Federal Credit Union Act § 1757(9). State-chartered credit unions are subject to state law. The amount a member can obtain is further limited by its creditworthiness and the amount of eligible collateral available to secure an advance.
Close and return to topCan a credit union borrow from the CLF for any purpose?
No. A credit union may borrow only to meet a liquidity need. The NCUA Board by statute cannot approve a request for an advance when the purpose of that advance is to expand portfolios (that is, credit unions cannot use CLF advances to strategically fund or expand their portfolio of loans or investments).
Close and return to topCan a credit union establish a line of credit with the CLF?
No, the CLF does not provide lines of credit. The CLF grants fixed term secured advances at a fixed rate. Like the Federal Reserve discount window, the CLF is a federal contingent liquidity provider and underwrites each individual advance separately at the time of request.
Close and return to topCan a state-chartered, non-federally insured credit union borrow from the CLF?
Yes, as long as the credit union meets the following criteria: a Regular member or part of an Agent group; is creditworthy; has a demonstrated liquidity need; and has authority to borrow from the CLF under applicable state law.
Close and return to topHow does a credit union qualify for a CLF advance?
To qualify for an advance, a credit union must be creditworthy and demonstrate a liquidity need. A credit union is generally considered creditworthy if it is currently viable and not in danger of failing. The term liquidity need is defined in the Federal Credit Union Act (12 U.S.C. 1795(a)) and in NCUA regulations § 725.
Close and return to topHow will the CLF determine if a credit union is creditworthy?
The CLF evaluates creditworthiness using a variety of financial information, as detailed in NCUA regulations § 725.18, which may include (but is not limited to):
- Stated purpose of the advance;
- Borrower’s plan to repay the advance;
- Borrower’s current financial condition, based on information from such sources like Call Reports and Financial Performance Reports; and,
- Statutory limitations on borrowing.
Certain unsatisfactory practices and/or conditions may cause the CLF to determine that a member is not creditworthy and is therefore ineligible to receive an advance. NCUA regulations § 725 lists characteristics the CLF may consider as un-creditworthy.
A credit union that fails to meet CLF creditworthiness standards may qualify for assistance from the National Credit Union Share Insurance Fund (Share Insurance Fund), as provided under § 208 of the Federal Credit Union Act.
Close and return to topDoes a credit union have to exhaust all other funding sources before it can request a CLF advance?
No, members are not required to exhaust all other funding sources before they can request an advance. However, a credit union must demonstrate it has first made a reasonable effort to utilize its own balance sheet liquidity and/or primary market funding sources. Credit unions cannot use the CLF as a conventional funding facility. The CLF is not intended to be a standard substitute for available market alternatives. To clarify whether it meets the CLF’s liquidity need criteria, members are encouraged to inquire upon need and interest with an Agent or directly with the CLF.
Close and return to topWhat collateral is required to secure a CLF advance?
Each Facility advance must be secured with a first-priority security interest in assets of the borrowing credit union. The CLF may accept most or all credit union assets as collateral for an advance provided they are performing and have a determinable value. For example, pledged loan assets must be currently performing (that is, no loans that are more than 60 days past due will be accepted) and pledged investment securities must have a readily determinable market price or other reasonable estimate of value. Pledged assets must have a value at least equal to an amount as required by the CLF’s collateral margins table or by guarantee of the National Credit Union Share Insurance Fund. For more information about collateral requirements, see NCUA regulations § 725.19(a) and (c) and Appendix C-2 of Operating Circular 20-02.
Close and return to topHow does a credit union pledge collateral to secure a CLF advance?
Credit union officials should take steps to ensure that unencumbered assets are available to pledge if the institution needs a future CLF advance.
In some cases, a credit union may have multiple sources of liquidity from different lenders that require coordination between those third parties. In general, a credit union will need to resolve potential inter-creditor conflicts that arise if it has relationships with multiple market and federal contingent liquidity providers. For example, it may need to establish collateral subordination agreements between its various providers to ensure that it has access to each. Most credit providers require a first priority security interest in the assets collateralizing a loan. It is the CLF member’s responsibility to identify conflicts and take the necessary steps to resolve any needed subordination agreements. Failure to do so could prevent a member from receiving funding in a timely manner. CLF staff will coordinate with Agent and Regular members to establish the necessary subordination agreements to resolve any collateral conflicts between them.
For all Regular member advance transactions, the CLF uses a corporate credit union as a third-party correspondent to perfect liens and assist with collateral management. Correspondent agreements are currently in place with all corporate credit unions. All liquidity advances must be supported by eligible collateral. For more information about this process, see Operating Circular 20-02.
Close and return to topWhen a CLF advance request is approved and the assets of the borrower are pledged as collateral, is the borrower exposed to risk from the asset custodian?
No, a borrower is not exposed to risk from the asset custodian. While the CLF uses third party correspondents as collateral custodians for all advances, it is authorized to terminate and transfer custodial services if necessary. The CLF is the borrower’s counterparty for all advances and each custodial arrangement is governed by contract.
For a Regular member advance, a corporate credit union serves as the collateral custodian for the CLF. The corporate credit union acts as a fiscal agent to perfect the CLF’s first priority security interest and it maintains a hold on pledged collateral for the duration of the advance. Other than as a fiscal agent for CLF, the corporate credit union is not party to the transaction. The advance does not go through the correspondent’s (corporate credit union’s) balance sheet and is governed by the CLF’s Repayment, Security and Credit Reporting Agreement.
For an Agent member advance, the corporate credit union acts as a member of the CLF. For all Agent advances, the funds are delivered to the respective Agent (corporate credit union) for further same-day distribution to the borrowing member (natural person credit union). As an Agent member, the corporate credit union also perfects the CLF’s first priority security interest maintains a hold on pledged collateral for the duration of the advance. When an Agent-accepted advance is initially approved by CLF, the Agent (corporate credit union) simultaneously reassigns their interest in the advance to the CLF. All Agent advances are likewise governed by the CLF’s Repayment, Security and Credit Reporting Agreement. See Operating Circular 20-01 on the NCUA’s website.
Close and return to topHow does a credit union submit an advance application to the CLF?
If a natural person credit union is a Regular member, it may submit an advance request by sending an email to CLFmail@NCUA.gov or may call the CLF staff directly at 703.518.6428.
Regular members must submit a notice of intent to borrow and complete form NCUA – 7001, and if necessary, forms NCUA – 7002, NCUA – 7003, and NCUA – 7004. See Operating Circular 20-02 on the NCUA’s website.
If a natural person credit union is part of a CLF Agent group, it always works directly with the Agent (corporate credit union) to request CLF-provided funds. Upon acceptance of an advance request, Agent members submit a notice of intent to borrow by completing form NCUA – 7005. See Operating Circular 20-01 on the NCUA’s website.
Close and return to topWhat documentation is required to support a CLF advance request?
The CLF is required to evaluate a credit union member’s creditworthiness and its liquidity need circumstances when each advance request is submitted. To support this evaluation, a member may be required to provide some or all of the forms available in Operating Circular 20-02 on the NCUA’s website.
Natural person credit union members who seek liquidity advances through an Agent member must execute a Liquidity Need Loan Application (CLF – 10), available in Operating Circular 20-01, one time with their Agent (corporate credit union) prior to receiving an initial advance. An Agent member may not obtain a Facility advance and re-lend the funds to a natural person credit union member that has either not signed this application or has rescinded it. The NCUA does not require any other forms from the Agent (corporate credit union).
For more information on the Agent borrowing process, see Operating Circular 20-01 on the NCUA’s website.
Close and return to topHow does the advance approval process work?
For either an Agent or Regular member advance request, the CLF begins underwriting the advance, which includes, but is not limited to, assessing the creditworthiness of the borrower, obtaining the required level of internal NCUA approval, and working with the correspondent (or CLF Agent). This process will begin once the application is verified as complete. As part of the underwriting process, CLF is required to confer with the appropriate NCUA Regional or Office of National Examinations and Supervision Director, and in the case of a state-chartered credit union, the state supervisory authority. The CLF is required to take action on an advance request within five business days (from the time the advance application is complete).
For more information on the advance application and approval process, see Appendix B of Operating Circular 20-02 for Regular members and Operating Circular 20-01 for Agent members.
Close and return to topHow long does it take for an approved borrower to receive funding?
The NCUA is required by the Federal Credit Union Act to approve or deny an application for a CLF advance within five working days after receiving it. However, the CLF will decide each advance request as soon as practicable within the required five-day period. The timetable for funding an approved advance request is determined by the delivery timetable from the Federal Financing Bank. The CLF utilizes the Federal Financing Bank to match-fund its approved advances and this arrangement is governed by an agreement that stipulates delivery times. The delivery times are based on the dollar amount requested. For smaller amounts, the CLF may elect to fund an advance from its own available funds, in which case the advance would likely be funded in one or two business days. The timetable for disbursements can be found in Operating Circular 20-02 for Regular members and Operating Circular 20-01 for Agent members.
An application is considered “in-process” when it is complete and has been officially logged by the CLF.
Close and return to topHow does the CLF confirm the terms of a Regular member advance?
The CLF provides the member and the Agent/correspondent a confirmation that includes the terms of an advance when each advance is made. The notice includes details about the date and amount of the advance, the interest rate, the principal repayment date or dates (if any), the principal amount due on each such principal repayment date (excluding interest), the interest payment dates (if any), and the maturity date.
Close and return to top