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FHLBs ask to be named a CU emergency liquidity provider
WASHINGTON (2/4/13)--As the National Credit Union Administration considers its emergency liquidity proposal for credit unions, the 12 Federal Home Loan Bank (FHLB) presidents have sent a joint letter asking the agency to name their system specifically within the plan as a source of backup liquidity.

The NCUA proposal, issued last summer, would require federally insured credit unions with assets of $10 million or more to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations. The Credit Union National Association opposes the plan as written and urged the agency last September not to go forward with a final rule without changes.

In its proposal, the NCUA said credit unions can ensure access to backup liquidity by:

  • Becoming a member of the Central Liquidity Facility (CLF);
  • Becoming a CLF member through a CLF agent; or
  • Establishing direct borrowing access to the Federal Reserve's Discount Window.
CUNA noted in a comment letter to the agency that a major issue of concern for a number of credit unions is the exclusion of the Federal Home Loan Banks as a permissible source of emergency liquidity and CUNA has strongly advocated this position.

In their Jan. 31 letter to NCUA Chairman Debbie Matz and board member Michael Fryzel, the FHLB presidents wrote, "The FHLBanks serve as a reliable source of liquidity for all of their members during all economic cycles, and we urge the NCUA to include the FHLBanks among the eligible sources of emergency liquidity.

"Such action would encourage and facilitate a stable source of funding to assist credit unions of all sizes in meeting their business, community, and member needs."  The letter was a follow up to earlier comments to the agency on the issue.

The FHLB president wrote that they appreciate that the NCUA recognized in its notice of proposed rulemaking the importance of the FHLBanks in providing liquidity and other services to credit unions.

"We also agree with your recommendation that credit unions of all sizes should consider the merits of membership in their local FHLBank, but we believe that the FHLBanks are and should be included as a reliable source of emergency liquidity."

The FHLBs were created by Congress in 1932 to provide liquidity support to the nation's mortgage lenders. Credit unions and other financial institutions can access the FHLB liquidity system by becoming FHLB members.
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