As prepared for Delivery on March 18, 2021
“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.” These few sentences were first said by me not in March 2021 but during an NCUA Board meeting in April 2020. I’m not sure any of us knew where we would be a year later after the COVID-19 pandemic spread through the country and the world.
Today, the credit union system is awash in capital and liquidity. Another stimulus will be hitting many members' accounts soon if it hasn’t already. But, as I have said before, we should prepare for the worst and hope of the best. One of the best ways for the NCUA to prepare for the worst and hope for the best is to have a robust Central Liquidity Facility.
Today’s interim final rule before us today is largely a technical update to the NCUA regulations given that the CLF was extended temporarily a second time by Congress. Thanks to the changes made by the CARES Act last year and subsequent action by Congress to extend these CLF provisions beyond the initial sunset of December 31, 2020, the CLF’s borrowing has increased significantly. I was glad to work as a team with Chairman Harper and Vice Chairman Hauptman to get the CLF provisions extended by Congress again--albeit temporarily. But I do think it is appropriate to note that I, too, believe these changes should be made permanent, and I pledge to work with my board colleagues in that regard.
If this pandemic crisis turns into an economic crisis and then a liquidity crisis, which we don’t see at present, the credit union system is in a much better place than it was before the CARES Act’s CLF provisions was enacted. In fact, the NGN briefing we will have later today is a reminder of a liquidity crisis and what can happen. When the next liquidity crisis does come, and it will come--we just don’t know when and we don’t know what will cause it, we need to be prepared.
Let’s look at the facts: In March 2020, the CLF had 279 regular members and $7.5 billion in borrowing authority. And while the CARES Act did increase the borrowing multiplier of the CLF, the credit in this growth really should go to the credit unions because the cooperative system really stepped up to the plate--just as I expected they would do. Credit unions didn’t join the CLF by regulatory fiat. Credit unions joined voluntarily in the cooperative spirit of people helping people and, in this particular case, credit unions helping credit unions--natural persons and corporate credit unions alike--and ultimately helping members should a liquidity crisis arise.
Since the changes made by the CARES Act, as of March 12, 2021, the CLF has 71 new regular members and 11 new agent members. The 11 new corporate credit union agent members represent an additional 3,762 natural person credit unions. In total, 4,110 credit unions are either CLF members or represented by an agent member. And I would be remiss if I didn’t thank Owen Cole, who has since retired from the agency, and Anthony Cappetta for the key role they played in enacting the CARES Act changes at the NCUA.
In closing, last year, I was a strong proponent of having the CLF President position as a stand-alone entity. The CLF President should be a full-time job and not wear multiple hats within the agency.
The reality is simply this: the CLF has just over $1 billion in assets and just over $1 billion in equity. This is a substantial sum of money and we need to have a CLF President on a full-time basis as soon as possible--someone who is not managing other important verticals at the agency on top of the CLF.