As Prepared for Delivery on April 16, 2020
Earlier this week, the NCUA Board unanimously approved, by notation vote, an interim final rule that enhances the ability of the Central Liquidity Facility (CLF) to serve as a liquidity backstop for the nation’s credit union system.
The CLF, a mixed-ownership government corporation that serves as a form of liquidity insurance for credit unions, can borrow from the U.S. Treasury, and use those funds to make loans to member credit unions and the National Credit Union Share Insurance Fund. This borrowing power was an essential element in helping the credit union system work through the last financial crisis.
Liquidity, like capital, is a pillar of strength upon which the safety and soundness of the credit union system rest. While we hope for the best outcome to the current emergency, we need to prepare for the possibility that the CLF will once again prove vital in addressing the liquidity needs for credit unions and the Share Insurance Fund. We know from our experience with the last financial crisis that addressing liquidity needs aggressively reduces the corresponding threat to capital adequacy.
Right now, we are facing an unprecedented disruption to our economy. And we do not know for sure how the situation will unfold and what the fallout might be. It is difficult to forecast. However, we must take steps to preserve our system’s capacity and to safeguard its members.
Credit unions, since their earliest formation, have always provided critical financial assistance to their members, especially those of modest means and limited access to credit and other financial services.
Bolstering our system’s liquidity strength right now is necessary to ensure that our nation’s credit unions remain stable and strong, and continue delivering quality and affordable financial services to the more than 120 million members they serve.
I want to remind our stakeholders about the necessity of having a robust contingent liquidity resource, one that is able to meet rapid, volatile, and unexpected conditions. I want to emphasize that liquidity needs are of a nature, that if not addressed swiftly and decisively, can translate into rapid financial distress for individual institutions or even the broader system.
The actions taken by the NCUA Board to enhance the CLF are proactive steps that are designed to alleviate potential liquidity strains and are undertaken with expedience to ensure the maximum intended effects are in place at the earliest opportunity.
The events of this pandemic have unfolded rapidly in a few short months. The effects and implications already require new additions to our risk-management playbook. We are reminded that even longstanding contingency plans sometimes must be augmented with modifications and aggressive action to counter developments that are simply beyond our previous crisis-management experience.
This Board, and the agency’s staff, are working tirelessly to implement response measures, like the current changes to the CLF, which will help us remain abreast of these rapidly unfolding events. By doing so, we strive to keep the system sufficiently liquid and reliably operational. Most importantly, we make good on our mission to ensure credit unions can deliver quality and affordable financial services to their members without disruption while remaining safe and sound.
The CLF is a proven solution for individual credit unions and for helping to stabilize liquidity throughout the credit union system.
While we’re confident the credit union community will remain safe and sound, these temporary measures will help ensure sufficient liquidity is available until the extent of the COVID-19 impact has been fully determined. By working together in the cooperative spirit on which the industry was founded, the credit union community can assist one another in ensuring the system has adequate liquidity, and thus, maintain the health of the credit union system as we prepare for the economic recovery to come.