Comments on Interim Final Rule: CLF (RIN 3133-AF18)
June 29, 2020
Gerard Poliquin
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314
Re: NASCUS – Comments on Interim Final Rule: CLF (RIN 3133-AF18)
Dear Mr. Poliquin:
The National Association of State Credit Union Supervisors (NASCUS)[1] submits the following comments in response to the National Credit Union Administration’s (NCUA’s) request for comments on RIN 3133-AF18, an Interim Final Rule making changes to the administration of the Central Liquidity Facility (CLF).[2] The Interim Final Rule (IFR) makes several conforming changes pursuant to § 4016 of the CARES Act including permitting corporate credit unions to borrow for their own needs and allowing corporate credit unions to serve as agents upon subscription of smaller pools of CLF stock. Both changes are scheduled to sunset December 31, 2020.
NCUA also made three discretionary changes to the CLF. The agency eliminated the six-month waiting period for a new member credit union to receive a loan, expedited the ability of credit unions to terminate membership in the CLF, and eased collateral requirements for certain credit union assets securing loans from the CLF.
Established in 1979, the CLF is an important source of liquidity for its credit union members.[3] With the prospect of a COVID-19 pandemic recession facing the financial services industry, it will be essential that credit unions have reliable access to contingency funding for sound balance sheet management. By increasing the CLF’s access to borrowing, reducing the barriers to credit union participation by allowing corporate credit unions greater flexibility in serving as agents, and streamlining the process by which credit unions may join and withdraw from the CLF, the changes authorized by the CARES Act and implemented by NCUA are prudent measures to strengthen the credit union system into the near future. NASCUS supports this rulemaking.
Corporate Credit Unions Play an Important Role Supporting Natural Person Credit Unions
Changes to the CLF permit corporate credit unions to borrow in their own capacity as well facilitate the ability of corporate credit unions to act as agents for natural person credit unions by narrowing subscription requirements to only those credit unions seeking access to the CLF. These changes will substantially enhance the corporate credit unions’ ability to serve more natural person credit unions of all sizes. That as of this writing, all eleven corporate credit unions have subscribed to CLF stock providing access for 3,700 natural person credit unions with assets of $250 million or less is evidence of the prudence of these changes.[4] Furthermore, corporate credit unions do more than just provide natural person credit unions an avenue of access to CLF borrowing. As needed, corporate credit unions often assist credit unions with the borrowing process with respect to underwriting, preparing documentation, perfecting security interests, and transferring advances. Perhaps most importantly, corporate credit union agents can provide the natural person credit union a bridge loan while the natural person credit union awaits the CLF’s processing of the advance.
NASCUS commends the corporate credit union network for their work to support the broader credit union system. We urge NCUA to work with stakeholders to seek permanent changes to the CLF that would permit corporate credit unions the option to continue to serve natural person credit unions in this manner into the future.
Natural Person Credit Union Membership
Under the permanent changes to the CLF made by the IFR, a new CLF member no longer need wait six months before receiving an advance, and collateral requirements will in some cases be eased based on the type of asset pledged. Both changes make it more practical for a credit union to join the CLF now which in turn expands the access to liquidity for all member credit unions. NASCUS supports these changes as they substantially enhance the utility of the CLF as a contingency funding source.
We also support the changes that make terminating membership in the CLF in the coming months and in 2021 more seamless. It is our understanding that larger credit unions with alternative funding sources have nonetheless purchased CLF subscriptions to expand liquidity options for their peers. Providing those credit unions, and others, an efficient exit from the CLF as the crisis wanes is sound public policy and we support it. We would also support exploring ways in which a more seamless and efficient exit framework could be established post-crisis.
The CARES Act included two additional changes to the CLF that NCUA has implemented but did not publish for comment as they were self-effectuating and neither had corresponding regulatory provisions.[5] Those legislative changes increased the CLF’s borrowing authority from twelve-times subscribed stock to sixteen-times subscribed stock and removed the limitation on borrowing for the purpose of expanding a credit union’s portfolio.[6] As it is, NASCUS supported these legislative changes and NCUA’s swift adoption of said changes.
As with our comments submitted earlier today in response to NCUA’s IFR related to changes to Prompt Corrective Action, NASCUS once again agrees with NCUA that good cause exists for the issuance of these changes as an IFR with neither advance notice and comment nor a delayed effective date.[7] As noted herein, a majority of these changes are cohering to changes mandated by the CARES Act. With respect to the discretionary changes, we find these changes to be consistent with the intent of the CARES Act to enhance the availability of liquidity for the credit union system. Given these circumstances, it was appropriate to use the APA exception to issue this rule as an interim final.[8]
NASCUS thanks NCUA for the opportunity to submit comments on the Interim Final Rule that made changes to the CLF. As the credit union system continues its response to the COVID-19 pandemic and prepares for the post-COVID recession, the changes to the administration of the CLF will strengthen an important liquidity backstop for the credit union system. As reflected in our comments, we believe many of these changes strengthen the credit union system in general. NASCUS encourages NCUA to work with stakeholders and with Congress to make temporary changes to the CLF permanent.
We would be happy to discuss our comments in detail or provide additional information at NCUA’s convenience.
Sincerely,
– signature redacted for electronic publication –
Lucy Ito
President and CEO
[1] NASCUS is the professional association of the nation’s 45 state credit union regulatory agencies that charter and supervise over 2,000 state credit unions. NASCUS membership includes state regulatory agencies, state chartered and federally chartered credit unions, and other important stakeholders in the state system. State chartered credit unions hold nearly half the $1.6 trillion assets in the credit union system and are proud to represent nearly half of the 122 million credit union members.
[2] NCUA Interim Final Rule: CLF, 85 Fed. Reg. 83, at 23731 (April 29, 2020).
[3] CLF membership satisfies contingency funding planning requirements of 12 C.F.R. 741.12.
[4] NCUA Letter to Credit Unions 20-CU-14 Establishment of CLF Agent Memberships (May 2020).
[5] 85 Fed. Reg. 83, at 23733 (April 29, 2020).
[6] CARES Act §§ 4016(a)(4) and 4016(a)(3).
[7] 85 Fed. Reg. 103, at 31955 (May 28, 2020).
[8] 15 U.S.C. §553.