Central Liquidity Facility Bill Could Give ‘Greater Flexibility’ to CUs
The legislation would allow corporate credit unions purchasing power of CLF capital stock.
On Monday, Sens. Alex Padilla (D-Calif.) and Kevin Cramer (R-N.D.) introduced a bill to amend the Federal Credit Union Act in a way that would allow corporate credit unions to target purchases of Central Liquidity Facility capital stock for a specific subset of credit union members, rather than for all members.
According to a statement from Sen. Padilla, the bill (S. 5183) would give a boost to smaller credit unions that are having a difficult time with liquidity issues.
“Congress created the Central Liquidity Facility in 1978 to improve the general financial stability of credit unions by serving as a liquidity lender to credit unions experiencing unusual or unexpected liquidity shortfalls,” Padilla said. “Unfortunately, under current law, smaller credit unions often do not have access to the critical tool that could help them address liquidity shortfalls, especially amid higher interest rates.”
NAFCU President/CEO Dan Berger applauded the introduction of the bill.
“NAFCU thanks Senators Padilla and Cramer for introducing bipartisan legislation which would offer credit unions greater flexibility and ample liquidity resources, as they continue to brace economic headwinds,” said Berger. “We have urged lawmakers to make CLF enhancements permanent since the CARES Act and will continue to do so to allow credit unions to best serve their 134 million members.”
During testimony in November before the U.S. Senate Committee on Banking, Housing and Urban Affairs, NCUA Chairman Todd Harper asked the committee for a much-needed legislative action, similar to the bill introduced by Sens. Padilla and Cramer.
“The NCUA requests a permanent adjustment to agent-member requirements for the Central Liquidity Facility,” said Harper. “Notably, the extension of this enhancement comes at no cost to the taxpayer, as scored by the Congressional Budget Office. Currently, corporate credit unions may serve as an agent for a subset of their members. But, without legislative action, by year’s end, three out of every four credit unions—including most minority credit unions—will soon lose access to an important liquidity backstop. And, the credit union system’s capacity to address liquidity events will shrink by almost $10 billion. With growing interest rate risk and rising liquidity concerns, now is not the time to decrease access to the system’s liquidity shock absorber.”
According to the bill, these changes would be in place until Dec. 31, 2027.