NCUA CLF Statement - CUNA Comments Posted by AVCU on 8:26 PM

A message from CUNA this afternoon addresses an announcement from the National Credit Union Administration Board today regarding the Central Liquidity Facility. Here's a link to the NCUA's announcement:   http://www.ncua.gov/news/press_releases/2009/7-31NCUAAnnouncesChangestoCLFInvestmentPolicy.pdf 

CUNA's clarification follows: The role of the CLF is to provide short-term loans to natural-person credit unions to meet unexpected liquidity needs.  The CLF is managed by NCUA and funded by stock subscriptions purchased from within the credit union system and borrowings from the Federal Financing Bank, which is housed in the U.S. Treasury.   The current borrowing authority for the CLF is approximately $41 billion. In order for a credit union to qualify for access to the CLF, it must either purchase CLF stock or have stock purchased on its behalf by an agency of the CLF.  Currently, U.S. Central is the Agent Group Representative and acts as the agent for other credit unions that do not belong directly to the CLF, including natural person credit unions.

U.S. Central owns about 96% of the CLF's stock. As of June 30, 2009, the CLF's total paid-in capital stock and retained earnings were approximately $1.8 billion. These funds are on deposit at U.S. Central and represent the CLF's total equity.  However, NCUA has concluded that because of accounting rule changes, it is necessary to transfer the $1.8 billion from U.S. Central to the U.S. Treasury where the funds will be invested on the CLF's behalf in U.S.Treasury securities.   NCUA staff reported that this action will not alter the CLF's role in providing back-up liquidity to credit unions.  It does mean that, going forward, the CLF will need to replace the $1.8 billion in capital they currently have from U.S. Central.  Also, NCUA noted that this action is "not based on a concern or diminished confidence in NCUA's conservatorship efforts to restore U.S. Central to a financially strong operational status."  Separately, U.S. Central released its second quarter 2009 financial statement today, reflecting OTTI charges of $537.0 million. The statement is available at http://www.uscentral.org/uploadedFiles/2QTR09%20SUPPLEMENT%20FINAL.pdf.)   CUNA is evaluating NCUA's analysis of the current situation regarding the CLF. 

All of the ramifications of this action are not yet known.  CUNA staff is reviewing it carefully and will be working with the appropriate CUNA committees to assess the implications.
Joe Bergeron - sent by Blackberry