110th CONGRESS, LEGISLATIVE ISSUES A - Z

ISSUE: Congress established the Central Liquidity Facility (CLF) in 1978 and is managed by the National Credit Union Administration (NCUA). The role of the CLF is back-up liquidity provider (whereas the role of the Federal Reserve System’s discount window is lender of last resort). In passing the Monetary Control Act of 1980, Congress recognized the CLF as a special industry lender – a back-up liquidity provider – distinct from the discount window.

The CLF’s lending activities are funded by its capital and by borrowing from outside sources like the Federal Financing Bank. The Federal Credit Union Act imposed a limit on the CLF’s borrowing authority – twelve times the CLF’s subscribed stock and retained earnings, which equates to approximately $24 billion. Congress also determines CLF’s operating expenses, even though the funding comes from CLF’s earned income.

In 1981, Congress imposed a $600 million cap on CLF. Congress increased the CLF’s borrowing authority to more than $21 billion during Y2K to provide assurance during the millennium date change; however, in FY2001-2007 the cap has been maintained at $1.5 billion.

CUNA POSITION: CUNA has a long-standing policy of supporting removal of the cap on CLF’s borrowing authority, since the cap has proven unnecessary and would have no budgetary impact if removed from the appropriations bill. Because Congress has been reluctant to remove the cap, CUNA and the NCUA support the $1.5 billion cap that is typically requested by the Administration.

IMPACT ON CREDIT UNIONS: Credit unions operate under a three-tiered approach for their liquidity needs. Credit unions can access the CLF, as a back-up liquidity provider, when corporate credit unions and other correspondent funding is unavailable.

Membership is voluntary and open to all credit unions that purchase a prescribed amount of CLF stock. There are two types of membership, regular (natural person credit unions) and agent (corporate credit unions).

The American financial system operates on confidence and credit unions are no different than banks in this regard. The imposition of an unreasonably low borrowing cap severely restricts the CLF and would likely prevent it from functioning as intended in even a moderate liquidity strain.

STATUS/OUTLOOK: For FY2007, Congress approved a $1.5 billion limitation on direct loans from the CLF, and the President has requested the same amount for FY2008. On June 28, 2007, the House of Representatives passed H.R. 2829, the Financial Services and General Government Appropriations Act for fiscal year 2008. In the legislation, the CLF’s new direct loan limit to member credit unions was capped at $1.5 billion. On July 12, 2007, the Senate Appropriations Committee passed the House legislation with the $1.5 billion CLF loan limitation. In late December, the Congress passed an omnibus spending bill that continued the $1.5 billion cap.

As the federal appropriations process proceeds, CUNA will continue to advocate for the existing loan limitation.

CONTACT: John Hildreth, (202) 508-6724, jhildreth@cuna.coop

Related Documents:

June 6, 2006: Letters to Reps Knollenberg, Olver, Lewis Regarding CDRLF and CLF

July 18, 2006: Letters to Reps Cochran, Bond and Murray Regarding CDRLF and CLF

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