The Coronavirus Aid, Relief, and Economic Security (CARES) Act authorized important changes to the CLF bringing temporary relief measures to member credit unions. The Consolidated Appropriations Act,2021 (CAA) extended these changes through December 31, 2021. Additionally, the NCUA Board approved an interim final rule of Part 725 of the NCUA’s regulations published in the April 29, 2020 Federal Register that provided additional enhancements to the CLF. Refer to the main CLF website for detailed information on these changes. The frequently asked questions reflect these temporary changes where appropriate.
The following definitions may be helpful when reviewing the FAQ.
Accepted loan application means an application for a liquidity-need advance by a natural person credit union to its Agent member that has been reviewed by the Agent and determined to meet the appropriate criteria for a CLF-funded advance.
Advance means a loan of funds by the CLF to a Regular or Agent member.
Agent means an Agent member of the CLF.
Agent group means an Agent member of the CLF consisting of a group of corporate credit unions, one of which is designated as the group’s Agent group representative and authorized to transact business with the CLF on behalf of the group or any member of the group.
Agent member means a corporate credit union, which is a member of the CLF.
Agent loan means an advance of funds by an Agent member to a member credit union to meet liquidity needs, which have been the basis for a CLF advance.
Corporate credit union means a federal or state-chartered credit union primarily serving other credit unions. A credit union is primarily serving other credit unions when the total dollar amount of the shares and deposits received from other credit unions plus loans to other credit unions exceeds 50 percent of the total dollar amount of all shares and deposits plus loans during the qualifying period.
Correspondent means a corporate credit union, which acts in a fiduciary capacity for the CLF independent of its role as an Agent member to provide services in support of CLF Regular members’ activities and liquidity advance transactions. Such activities will include perfection of a first priority security interest and ongoing collateral administration. All Regular member advances are serviced utilizing the correspondent of record for that member.
Member means a Regular or an Agent member of the CLF.
Member natural person credit union means a natural person credit union that is a member of an Agent. Member natural person credit unions are not members of the CLF unless they are also Regular members of the CLF.
Natural person credit union means a federal or state-chartered credit union primarily serving natural persons. A credit union is primarily serving natural persons if it is not a corporate credit union.
NCUA Board or Board means the National Credit Union Administration Board.
Qualifying period means: 1) for initial qualification, any 7 months out of the 12 months immediately preceding the month in which application is made to become a member of the CLF; and 2) for qualification during each subsequent calendar year, any 7 months out of the previous calendar year.
Regular member means a credit union that has become a member by: a) submitting an application for Regular membership to the CLF and b) subscribing to capital stock of the CLF.
Stock subscription means the stock subscription required for membership in the CLF.
Total subscribed CLF stock means the sum of all member’s stock subscriptions.
CLF Description and Operations
What is the CLF?
The CLF is an NCUA-operated, mixed-ownership U.S. government corporation. Owned by its member credit unions and managed by the NCUA Board, it is an instrument of the federal government. Congress created the CLF to improve the general financial stability of the credit union industry by meeting the liquidity needs of members in the same way that the Federal Reserve discount window provides access to loans for its eligible depository institutions. The CLF was created to serve as a back-up source of liquidity for both federal and state-chartered credit unions. For more information, see the CLF page on the NCUA’s website.Close and return to top
How are the CLF’s operations funded?
The CLF is financially self-supporting. Its administrative and operational expenses are not supported by any government funds. The CLF pays its expenses through earnings on its investments. The CLF may invest in obligations of the U.S. government and its agencies, deposits in federally insured financial institutions, and shares and deposits in credit unions.Close and return to top
What do the CLF financial statements look like?
Is there a limit on the total amount of funding available to the CLF to meet member credit union liquidity needs?
Yes. The CLF is subject to a maximum limit on its aggregate borrowing authority. By statute, except as provided below, the CLF’s maximum borrowing authority is limited to 12 times its subscribed capital stock and surplus per the Federal Credit Union Act (opens new window).
Through passage of the CARES Act, as amended by the CAA, Congress temporarily increased the borrowing authority to a limit of 16 times its subscribed capital stock and surplus. This limit is in effect from March 27, 2020 through December 31, 2021.Close and return to top
How does a Regular member test their borrowing capability with the CLF?
The Federal Financing Bank, the CLF’s primary source of funds, provides financing to help federal agencies manage their borrowing and lending programs and ensures that all federal government borrowing from the public is conducted through the U.S. Treasury and not through program agencies. Without an actual underlying liquidity need, the CLF is not permitted to conduct a test advance transaction involving funds from the Federal Financing Bank. However, the CLF does annually conduct a test transfer of funds, using a small dollar amount between itself and its members to verify the correctness of the delivery instructions of record. These are the same wire instructions used for actual liquidity advance requests. This testing process satisfies the NCUA regulatory requirement for “periodic testing to ensure contingent funding sources are readily available as needed” pursuant to NCUA regulations § 741.12(c) (opens new window).Close and return to top
What are the sources of CLF funds?
The two primary sources of funds for the CLF are its own balance sheet and its authority to borrow from the U.S. Treasury’s Federal Financing Bank. Generally, advances from the CLF are made using funds borrowed from the Federal Financing Bank. Each approved member advance is match-funded (paired with a borrowing that has the same dollar amount and terms) with a Federal Financing Bank advance. These transactions are structured with the same settlement and maturity characteristics.
For more information on the CLF’s access to the Federal Financing Bank, see Operating Circular 20-02 (opens new window) on the NCUA’s website.Close and return to top
How does a natural person credit union become a member of CLF?
There are two ways to become a member:
- Natural person credit unions can become direct members of the CLF by: 1) submitting an application for Regular membership to the Facility; and 2) subscribing to capital stock of the Facility as set forth in NCUA regulations § 725.3(a)(2) (opens new window). This applies to federal and state-chartered credit unions.
- A natural person credit union can also be a member through membership in a corporate credit union that is an Agent member of CLF.
The CARES Act provisions, as amended by the CAA, extended temporary flexibility to corporate credit unions so they could become Agents for subsets of their membership. These Agent membership groups are temporary and will authority for such groups will sunset December 31, 2021. Under this temporary authority, all corporate credit unions currently have joined the CLF as Agent members. As Agents, corporate credit unions have purchased CLF capital stock for all of their member credit unions that are not Regular members of CLF with total assets less than $250 million. If your credit union is a member of a corporate credit union with less than $250 million, you should contact your corporate credit union or the CLF before applying for Regular membership. Details of the Agent membership coverage can be found in Letter to Credit Unions 20-CU-14 Establishment of CLF Agent Memberships.Close and return to top
How does a Corporate Credit Union become a member of CLF?
There are currently two ways a corporate credit union may become a member of the CLF:
- Corporate credit unions may join the CLF as an Agent member. To become an Agent, a corporate credit union must purchase membership capital stock on behalf of the credit union members in their Agent group that are not already Regular members.
- A corporate credit union is temporarily eligible to also join the CLF as a Regular member. As a temporary Regular member, a corporate credit union may borrow to meet its own liquidity needs. This provision became effective with the implementation of the CARES Act on March 27, 2020 and will sunset on December 31, 2020. The NCUA made a corresponding change in NCUA regulations § 725.4 (opens new window) to clarify that a corporate credit union may join for its own needs by meeting the Regular membership requirements.
How does a credit union terminate CLF membership?
A credit union may unilaterally terminate its membership at any time by giving notice to the CLF of its intent to do so. The timing of the return of a credit union’s paid-in capital amount is subject to the statutory notice periods described in NCUA regulations § 725.6 (opens new window). Except as provided below, a member of the Facility may terminate its membership:
- Six months after notifying the NCUA Board in writing of its intention to do so, if the member’s stock subscription constitutes less than five percent of total subscribed CLF stock, or
- Twenty-four months after notifying the NCUA Board in writing of its intention to do so, if the member’s stock subscription constitutes five percent or more of total subscribed CLF stock.
During the CARES Act effective period, the NCUA has eased the notice period restrictions through a temporary change to NCUA regulations § 725.6 (opens new window). This rule became effective on April 29, 2020. Under this regulatory change, a member, regardless of its amount of stock subscription, may withdraw from membership in the Facility after notifying the NCUA Board in writing on the sooner of:
- Six months from the date of its written notice to the NCUA Board; or
- December 31, 2020.
Following the sunset of the CARES Act on December 31, 2020, a member may immediately withdraw from membership in the CLF after notifying the NCUA Board in writing of its intention to do so for a period of one year between January 1, 2021 and January 1, 2022. The Board is evaluating the possibility of undertaking additional regulatory action to further cohere the CLF regulation with the new dates in the Consolidated Appropriations Act, 2021, and address the temporary change to the waiting period for credit unions to terminate their membership in the CLF.Close and return to top
Is it possible for a credit union that is currently a Regular member to change the membership to be part of a corporate credit union’s Agent group?
Yes. The natural person credit union can initiate this conversion by contacting their corporate credit union or the CLF directly to request this change. The natural person credit union should consider that the existing Agent groups are temporary and are expected to end once the CARES Act provisions (extended on December 27, 2020) expire on December 31, 2021.Close and return to top
If a natural person credit union qualifies for coverage by a CLF Agent and belongs to more than one corporate credit union, how does the CLF determine which Agent will purchase capital stock on its behalf?
The choice of an Agent is ultimately the natural person credit union’s decision to make. Generally, it is expected that a credit union will select the corporate credit union with which it has a primary relationship (such as membership capital and borrowing facilities). In cases of an overlap in membership, Agent members will coordinate on a resolution giving preference to the highest levels of service extended (with the concurrence of the member). Most overlap issues were resolved in advance when the initial Agent groups were formed and approved by the CLF in May 2020.Close and return to top
If a natural person credit union qualifies for coverage by a CLF Agent, but does not wish to be included in the Agent membership, can it decline this benefit?
Yes, a natural person credit union can decline to be included in an Agent group. Please note that a natural person credit union will incur no cost to be included in an Agent group and has no obligation to borrow from the CLF. Inclusion in an Agent group poses no burdens or commitments to the natural person credit union until such time it may seek a CLF-backed advance.Close and return to top
What kind of advances can the CLF make?
As defined in 1795(a)(1) of the Federal Credit Union Act (opens new window) and in NCUA regulations § 725.2(7)(i) (opens new window), the CLF can make advances to meet liquidity needs of credit unions for:
- Short-term adjustment credits that are advances typically made for 90 days, but are available for periods up to one year;
- Seasonal credits that are advances generally available for periods of up to 270 days; and
- Protracted adjustment credits that are advances with varying terms.
How does the CLF disburse funds to a borrower once an advance is approved?
For a Regular member, advances are wired directly from the Federal Financing Bank to the member in accordance with their delivery instructions on record. The Federal Financing Bank, which is the CLF’s primary source of funds, provides financing to help federal agencies manage their borrowing and lending programs and to ensure that all federal government borrowing from the public is conducted through the U.S. Treasury and not through program agencies.
For credit unions that are covered by a CLF Agent group, advances will be disbursed to the natural person credit union through their Agent member/corporate credit union.Close and return to top
How quickly can a credit union request an advance after satisfying its membership requirements?
CLF members are eligible to request an advance once they complete the new member documents and pay the required capital stock amount. All advance requests are subject to the CLF’s liquidity needs and creditworthiness requirements and any advance is underwritten at the time of the request based on the applicant’s prevailing circumstances.Close and return to top
What is the maximum amount a credit union can borrow from the CLF?
A credit union can request any amount of funding it needs, up to its legal borrowing limit. For federal credit unions, refer to the Federal Credit Union Act (opens new window) § 1757(9). State-chartered credit unions are subject to state law. The amount a member can obtain is further limited by its creditworthiness and the amount of eligible collateral available to secure an advance.Close and return to top
Can a credit union borrow from the CLF for any purpose?
No. A credit union may borrow only to meet a liquidity need. Except as provided below, the NCUA Board by statute cannot approve a request for an advance when the purpose of that advance is to expand portfolios (that is, credit unions cannot use CLF advances to strategically fund or expand their portfolio of loans or investments).
The CARES Act, as amended by the CAA, temporarily amended this restriction through December 31, 2021 by temporarily removing the phrase “the Board shall not approve an application for credit the intent of which is to expand credit union portfolios” and granted the NCUA Board temporary flexibility and discretion to approve applications for Facility members that have “made a reasonable effort to first utilize primary sources of funding.” During this temporary period, a credit union that can demonstrate its primary sources of funding are insufficient to meet its needs at the time of the request may seek a CLF advance for liquidity purposes, regardless of whether it has an expansive effect on the balance sheet.Close and return to top
Can a state-chartered, non-federally insured credit union borrow from CLF?
Yes, as long as the credit union meets the following criteria: a Regular member or part of an Agent group; is creditworthy; has a demonstrated liquidity need; and has authority to borrow from the CLF under applicable state law.Close and return to top
How does a credit union qualify for a CLF advance?
To qualify for an advance, a credit union must be creditworthy and demonstrate a liquidity need. A credit union is generally considered creditworthy if it is currently viable and not in danger of failing. The term liquidity need is defined in the Federal Credit Union Act (opens new window) (12 U.S.C. 1795(a)) and in NCUA regulations § 725 (opens new window).
Under the CARES Act, both natural person credit unions and corporate credit unions are eligible to borrow from the CLF for their respective liquidity needs. This change occurred by temporarily changing the definition of a liquidity need for all credit unions, including corporates. The CAA extended the sunset of the CARES Act CLF provisions to December 31, 2021. Afterward, the statute will revert to its original language, which defines a liquidity need as that of a credit union primarily serving natural person credit unions (and corporate credit unions will no longer be eligible to borrow for their own needs).Close and return to top
How will the CLF determine if a credit union is creditworthy?
The CLF evaluates creditworthiness using a variety of financial information, as detailed in NCUA regulations § 725.18 (opens new window), which may include (but is not limited to):
- Stated purpose of the advance;
- Borrower’s plan to repay the advance;
- Borrower’s current financial condition, based on information from such sources like Call Reports and Financial Performance Reports; and,
- Statutory limitations on borrowing.
Certain unsatisfactory practices and/or conditions may cause the CLF to determine that a member is not creditworthy and is therefore ineligible to receive an advance. NCUA regulations § 725 (opens new window) lists the characteristics the CLF may consider as un-creditworthy.
A credit union that fails to meet CLF creditworthiness standards may qualify for assistance from the National Credit Union Share Insurance Fund (Share Insurance Fund), as provided under § 208 of the Federal Credit Union Act (opens new window).Close and return to top
Does a credit union have to exhaust all other funding sources before it can request a CLF advance?
No, members are not required to exhaust all other funding sources before they can request an advance. However, a credit union must demonstrate it has first made a reasonable effort to utilize its own balance sheet liquidity and/or primary market funding sources. Credit unions cannot use the CLF as a conventional funding facility. The CLF is not intended to be a standard substitute for available market alternatives. To clarify whether it meets the CLF’s liquidity need criteria, members are encouraged to inquire upon need and interest with an Agent or directly with the CLF.
The restriction upon the NCUA Board’s authority to approve liquidity advances was temporarily amended through December 31, 2021 by Section 4016(a)(3) of the CARES Act, as amended by the CAA. This section removed the phrase “the Board shall not approve an application for credit the intent of which is to expand credit union portfolios” from the Federal Credit Union Act (opens new window) and inserted “without first having obtained evidence from the applicant that the applicant has made reasonable efforts to first use primary sources of liquidity of the applicant, including balance sheet and market funding sources, to address the liquidity needs of the applicant.” This change gives the Board temporary flexibility and discretion to approve applications for Facility members even if the advance has an expansive effect so long as a credit union can demonstrate its primary sources of funding are insufficient to meet its needs at the time of the request.Close and return to top
What collateral is required to secure a CLF advance?
By regulation, each advance must be secured with a first-priority security interest in assets of the borrowing credit union. The CLF may accept most or all credit union assets as collateral for an advance provided they are performing and have a determinable value. For example, pledged loan assets must be currently performing (that is, no loans that are more than 60 days past due will be accepted) and pledged investment securities must have a readily determinable market price or other reasonable estimate of value. Pledged assets must have a value at least equal to an amount as required by the CLF’s collateral margins table or by guarantee of the National Credit Union Share Insurance Fund. For more information about collateral requirements, see NCUA regulations § 725.19(a) and (c) (opens new window) and Appendix C-2 of Operating Circular 20-02 (opens new window).Close and return to top
How does a credit union pledge collateral to secure a CLF advance?
Pre-positioning of collateral is not required for an advance from the CLF, but credit union officials should take steps to ensure that unencumbered assets are available to pledge if the institution needs a future CLF advance.
In some cases, a credit union may have multiple sources of liquidity from different lenders that require coordination between those third parties. In general, a credit union will need to resolve potential inter-creditor conflicts that arise if it has relationships with multiple market and federal contingent liquidity providers. For example, it may need to establish collateral subordination agreements between its various providers to ensure that it has access to each. Most credit providers require a first priority security interest in the assets collateralizing a loan. It is the CLF member’s responsibility to identify conflicts and take the necessary steps to resolve any needed subordination agreements. Failure to do so could prevent a member from receiving funding in a timely manner. CLF staff will coordinate with Agent and Regular members to establish the necessary subordination agreements to resolve any collateral conflicts between them.
For all Regular member advance transactions, the CLF uses a corporate credit union as a third-party correspondent to perfect liens and assist with collateral management. Correspondent agreements are currently in place with all corporate credit unions. All liquidity advances must be supported by eligible collateral. For more information about this process, see Operating Circular 20-02 (opens new window).Close and return to top
When a CLF advance request is approved and the assets of the borrower are pledged as collateral, is the borrower exposed to risk from the asset custodian?
No, a borrower is not exposed to risk from the asset custodian. While the CLF uses third party correspondents as collateral custodians for all advances, it is authorized to terminate and transfer custodial services if necessary. The CLF is the borrower’s counterparty for all advances and each custodial arrangement is governed by contract.
For a Regular member advance, a corporate credit union serves as the collateral custodian for the CLF. The corporate credit union acts as a fiscal agent to perfect the CLF’s first priority security interest and it maintains a hold on pledged collateral for the duration of the advance. Other than as a fiscal agent for CLF, the corporate credit union is not party to the transaction. The advance does not go through the correspondent’s (corporate credit union’s) balance sheet and is governed by the CLF’s Repayment, Security and Credit Reporting Agreement.
For an Agent member advance, the corporate credit union acts as a member of the CLF. For all Agent advances, the funds are delivered to the respective Agent (corporate credit union) for further same-day distribution to the borrowing member (natural person credit union). As an Agent member, the corporate credit union also perfects the CLF’s first priority security interest maintains a hold on pledged collateral for the duration of the advance. When an Agent-accepted advance is initially approved by CLF, the Agent (corporate credit union) simultaneously reassigns their interest in the advance to the CLF. All Agent advances are likewise governed by the CLF’s Repayment, Security and Credit Reporting Agreement. See Operating Circular 20-01 (opens new window) on the NCUA’s website.Close and return to top
How does a credit union submit an advance application to the CLF?
If a natural person credit union is a Regular member, it may submit an advance request by sending an email to CLFmail@NCUA.gov or may call the CLF staff directly at 703.518.6428.
Several forms are necessary to complete an application. Regular members must submit a notice of intent to borrow and complete form NCUA – 7001, and if necessary, forms NCUA – 7002, NCUA – 7003, and NCUA – 7004. See Operating Circular 20-02 (opens new window) on the NCUA’s website.
If a natural person credit union is part of a CLF Agent group, it always works directly with the Agent (corporate credit union) to request CLF-provided funds. Upon acceptance of an advance request, Agent members submit a notice of intent to borrow by completing form NCUA – 7005. See Operating Circular 20-01 (opens new window) on the NCUA’s website.Close and return to top
What documentation is required to support a CLF advance request?
The CLF is required to evaluate a credit union member’s creditworthiness and its liquidity need circumstances when each advance request is submitted. To support this evaluation, a member may be required to provide some or all of the forms available in Operating Circular 20-02 (opens new window) on the NCUA’s website.
Natural person credit union members who seek liquidity advances through an Agent member must execute a Liquidity Need Loan Application (CLF – 10), available in Operating Circular 20-01 (opens new window), one time with their Agent (corporate credit union) prior to receiving an initial advance. An Agent member may not obtain a Facility advance and re-lend the funds to a natural person credit union member that has either not signed this application or has rescinded it. The NCUA does not require any other forms from the Agent (corporate credit union).
For more information on the Agent borrowing process, see Operating Circular 20-01 (opens new window) on the NCUA’s website.Close and return to top
How does the advance approval process work?
For either an Agent or Regular member advance request, the CLF begins underwriting the advance, which includes, but is not limited to, assessing the creditworthiness of the borrower, obtaining the required level of internal NCUA approval, and working with the correspondent (or CLF Agent). This process will begin once the application is verified as complete. As part of the underwriting process, CLF is required to confer with the appropriate NCUA Regional or Office of National Examinations and Supervision Director, and in the case of a state-chartered credit union, the state supervisory authority. The CLF is required to take action on an advance request within five business days (from the time the advance application is complete).
For more information on the advance application and approval process, see Appendix B of Operating Circular 20-02 (opens new window) for Regular members and Operating Circular 20-01 (opens new window) for Agent members.Close and return to top
How long does it take for an approved borrower to receive funding?
The NCUA is required by the Federal Credit Union Act (opens new window) to approve or deny an application for a CLF advance within five working days after receiving it. However, the CLF will decide each advance request as soon as practicable within the required five-day period. The timetable for funding an approved advance request is determined by the delivery timetable from the Federal Financing Bank. The CLF utilizes the Federal Financing Bank to match-fund its approved advances and this arrangement is governed by an agreement that stipulates delivery times. The delivery times are based on the dollar amount requested. For smaller amounts, the CLF may elect to fund an advance from its own available funds, in which case the advance would likely be funded in one or two business days. The timetable for disbursements can be found in Operating Circular 20-02 (opens new window) for Regular members and Operating Circular 20-01 (opens new window) for Agent members.
An application is considered “in-process” when it is complete and has been officially logged by the CLF.Close and return to top
How does the CLF confirm the terms of a Regular member advance?
The CLF provides the member and the Agent/correspondent a confirmation that includes the terms of an advance when each advance is made. The notice includes details about the date and amount of the advance, the interest rate, the principal repayment date or dates (if any), the principal amount due on each such principal repayment date (excluding interest), the interest payment dates (if any), and the maturity date.Close and return to top
What rate does the CLF charge on advances?
By CLF policy, the CLF advance rate is set equal to the greater of the Federal Reserve Primary Credit rate or the Federal Financing Bank advance rate which is available to the CLF at the time of the request.
Advance rates from the Federal Financing Bank to the CLF are based on the current average market yield on outstanding obligations of the United States with remaining time to maturity of such advance. The Federal Financing Bank gets its rate from the U.S. Treasury. The shortest Treasury maturity used by the U.S. Treasury for pricing loans is the most recently auctioned 13-week Treasury (91-day T-Bills). The Federal Financing Bank adds 0.125 percent to the current average market yield on outstanding obligations of the United States that have a maturity similar to the advance.
Thus, as an example, a 90-day advance request would be priced at the higher of the Federal Reserve Primary Credit rate or the 13-week Treasury yield plus 0.125 percent.
For more information about the provisions that apply to advances from the Federal Financing Bank to the CLF, see Operating Circular 20-02 (opens new window) on the NCUA’s website.Close and return to top
What is the term of a CLF advance?
The maturity of a CLF advance will depend on the type of credit requested. Most advances are typically in the short-term adjustment credit category and will be made for a period of 90 days or less.Close and return to top
The CARES Act changes include a provision that allows Agents to cover a subset of their member natural person credit unions, but this ends on December 31, 2020. What will happen if an Agent advance is outstanding past the end of the year?
The CAA extended the sunset date of the CLF provisions of the CARES Act until December 31, 2021. Afterward, the advance will remain outstanding for its contractual term and the corporate credit union will maintain the custody of pledged assets throughout the life of the advance.Close and return to top
Can a credit union establish a line of credit with the CLF?
No, the CLF does not provide lines of credit. It only grants fixed term advances at a fixed rate. Like the Federal Reserve discount window, the CLF is a federal contingent liquidity provider and underwrites each individual advance separately at the time of request.Close and return to top