WASHINGTON (10/1/12)--While it is important for credit unions to address key operational issues, such as sources of emergency liquidity, the Credit Union National Association (CUNA) urged the National Credit Union Administration (NCUA) not to proceed with a plan that would require credit unions with less than $10 million in assets to maintain basic written emergency liquidity policies.
The NCUA proposal, which CUNA opposes, would also require federally insured credit unions (FICUs) with assets of $10 million or more to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations. FICUs with assets of $100 million or more would be required to have access to a backup federal liquidity source for emergency situations. This backup liquidity could come from NCUA Central Liquidity Fund (CLF) membership or direct borrowing from the Federal Reserve's Discount Window.
"Although overall liquidity management and policies are vital to credit union operations, there is no need for credit unions to secure access to specific types of emergency liquidity beyond what other federally insured depository institutions are required to do," CUNA Deputy General Counsel Mary Dunn wrote in a comment letter.
"Credit unions are already inundated with too many rules and any additional regulatory requirements should be imposed only if there is clear and convincing evidence that they are needed from a material safety and soundness standpoint or to meet statutory requirements," Dunn added. "In our view, the agency has not provided sufficient rationale or justification for issuing a new regulation."
Dunn noted that interagency guidance on liquidity policies, plans, and procedures, released in 2010, "sufficiently addresses primary issues regarding liquidity risk management" and said that other agencies "have not found the need to issue regulations on emergency liquidity."
New NCUA liquidity regulations "would be redundant in terms of safety and soundness results, while imposing significant and unnecessary compliance costs on credit unions. Moreover, NCUA and state examiners already have sufficient authority to direct credit unions to address any material deficiencies in their liquidity risk management policies and implementation," Dunn said.
If the NCUA does move forward with the liquidity proposal, the CUNA comment letter suggested the agency change the proposal to:
- Ensure the definition of smaller credit unions dovetails with the NCUA's revised definition of "small entity," which is now under review;
- Use, for larger credit unions, indicators such as loan-to-share ratios--and not just asset size only--in determining whether additional liquidity policy and federal liquidity source requirements should be imposed; and
- Allow, under certain conditions, Federal Home Loan Banks (FHLBs) to be permissible sources of emergency liquidity.
In other comments, Dunn wrote that the agency should refrain from imposing Basel III liquidity measures and monitoring tools, or similar measures, on credit unions with assets of $500 million or more. "The Basel III requirements have raised questions from banks and regulators alike and were not developed with any consideration of the unique nature, structure or characteristics of credit unions," Dunn wrote.
She also noted concern among credit unions that, with the demise of U.S. Central Bridge Corporate FCU, the CLF must be modified, for example, to address the requirement for stock subscriptions and to facilitate the ability of credit unions to use the CLF as readily as institutions are able to utilize the Federal Reserve's Discount Window for liquidity purposes.
For the full CUNA comment letter, use the resource link.