The clock is ticking for one of the credit union industry’s biggest legislative pushes this year.
Changes made to the National Credit Union Administration’s Central Liquidity Facility
This is the last week House and Senate lawmakers are scheduled to be together in Washington before adjourning for the year. The House is expected to leave by Friday while the Senate will stay one week beyond that, though there are some talks that House members could extend their stay. Regardless of how long lawmakers stay in town, CARES Act provisions related to the CLF won’t last past the end of this year without congressional action.
The catch to that is even if the CLF provisions do expire, most sources say there wouldn’t be a substantial impact on the industry — at least not in the short-term.
“There doesn’t seem to be any demand for it,” said Keith Leggett, a retired economist with the American Bankers Association who frequently comments on credit union issues. “I think that might reflect the fact that credit unions have other alternatives for liquidity, and that would be the Federal Home Loan Banks, the Federal Reserve’s Discount Window and even corporate credit unions for smaller credit unions. … It doesn’t appear anyone’s beating down the door to borrow from the CLF.”
The industry has not seen widespread liquidity problems, if any, since the pandemic began nearly nine months ago. Further, only a handful of credit unions this year have been liquidated or entered into conservatorship. NCUA’s own monthly reports on the CLF show no loans have been made through the facility yet this year.
Some in the industry, including NCUA board member
Credit unions with under $250 million of assets constitute more than two-thirds of the number of active institutions but comprise only about 10% of total system assets.
Even if the facility isn’t being used now, it could see a surge in borrowing should liquidity begin to dry up. That was the case more than a decade ago when the financial crisis hit. After making only one advance between 2001 and 2008, loan demand surged to $6 billion in a matter of months at a time when the facility only had about $1.5 billion in lending authority, according to a former NCUA insider.
And there are concerns the year ahead could be more problematic for the industry than 2020.
“Our view has been from the early days of this crisis that 2021 was going to be a harder year in many respects than 2020, and part of that has to do with the fact that in 2020 there was substantial government support for small businesses and consumers impacted by the crisis, and that support in most cases has been exhausted and hasn’t been replenished,” said Ryan Donovan, chief advocacy officer at the Credit Union National Association. “Now we’re talking about a new round of support but that’s going to be at a smaller level, and a time where for a lot of small businesses in particular the circumstances have become even more grim. We still view 2021, in the absence of circumstances changing considerably — to be a much more challenging year overall and for credit unions in particular.”
Leggett suggested the industry has plenty of other avenues, adding that if a severe liquidity crisis occurs in 2021, “the CLF can’t meet it; it doesn’t have the resources if it’s a really, really severe crisis that develops.” The facility, he added, was “created at a time when credit unions didn’t have access to other sources of liquidity and that no longer is an issue. Clearly the Federal Reserve as a backstop has a bigger gun than NCUA does and is better capable of addressing liquidity issues within the economy.”
Industry groups aren’t planning to throw in the towel if the provisions do expire. Donovan suggested that there may be more opportunities to attach an extension to unrelated bills instead of just COVID-relief legislation as Congress moves to wrap up its business. He added that many items linger until near the end of the legislative session, as was the case with
“After months of inactivity, it seems like post-election maybe some of the political rough edges may have been removed and maybe Congress is getting down to the serious business of trying to legislate,” said John McKechnie, a credit union consultant with Total Spectrum. “It appears from what I’ve heard on the Hill that there are serious discussions occurring, so maybe something will come together. No guarantees, but they seem to be talking in a way now that they weren’t talking before Nov. 3.”
And if the measures sunset on Dec. 31 there are hopes they could be reintroduced in new legislation early next year.
“We’re hopeful that if, in the worst case, it does expire and doesn’t get attached to a bill this year, there’s still opportunity as the new year opens up,” said Jay Murray, CEO at Vizo Financial Corporate Credit Union.
That feeling isn’t universal, though.
Including expired CLF provisions in future legislation “would be a tough lift … because Congress has already made a decision that there was no need for this expanded authority,” said Leggett.
Others, however, suggested lack of movement on the issue thus far was less about the facility and had everything to do with lawmakers’ inability to pass any sort of additional pandemic-relief package.
The new year could bring new liquidity concerns and the industry needs to be prepared, sources said.
“Just because you haven’t had a house fire on your street doesn’t mean they should close down the local fire station,” McKechnie said.
