David Savoie, President/CEO, LaCorp
Liquidity is the oxygen of the credit union system. Without reliable access to it, credit unions can’t continue to lend, support members or fulfill our mission.
I’m somewhat encouraged to see bipartisan legislation in Congress to modernize the National Credit Union Administration’s (NCUA) Central Liquidity Facility (CLF). Senate Bill 2545, introduced by Senators Alex Padilla (D-Calif.) and Kevin Cramer (R-N.D.), is a meaningful step toward improving how most credit unions can access this critical backstop.
The bill would restore a key provision that expired at the end of 2022: the ability for corporate credit unions to serve as agent-members of the CLF on behalf of their smaller credit union members. When this authority lapsed, 3,322 smaller credit unions lost direct access to the CLF overnight, and the facility’s lending capacity contracted by nearly $10 billion. While the CLF requires further modernization to enhance its relevance, the lack of efficient access to it is a vulnerability our system doesn’t need.
LaCorp is a signatory of the Corporate Credit Union Alliance’s letter supporting S. 2545, and we strongly believe restoring agent membership authority is the right move. We’ve been here before. LaCorp and other corporate credit unions served as an agent-member during the last period when this was allowed. We stand ready to do it again.
Why Agent Membership Matters
Under the CLF’s current structure, a credit union must purchase capital stock in the facility to become a member; the amount is tied to a percentage of its capital and surplus. For smaller credit unions, the cost and complexity can be barriers. When a corporate credit union is allowed to serve as an agent-member, it can buy the CLF capital stock on behalf of a subset of its member credit unions, specifically those with less than $250 million in assets, and pool their access to liquidity.
This is more efficient, more affordable and far more practical for the more than 2,900 small credit unions that don’t have immediate access to credit union system-backed emergency liquidity. Allowing corporate credit unions to serve as agent-members of the CLF is entirely consistent with the cooperative spirit of our movement: credit unions helping credit unions.
When LaCorp served as an agent member previously, our role was clear and impactful. We provided our smaller member credit unions with a direct line to the CLF that they couldn’t have obtained easily on their own. This gave them peace of mind and gave the system more resilience.
Systemic Liquidity Is Highly Variable
It’s easy to dismiss liquidity concerns in stable times, but history shows that stress can emerge quickly. The events of early 2023, when liquidity pressures flared across segments of the banking industry, were a wake-up call. Federal regulators, including the NCUA, have been clear: credit unions should maintain “actionable contingency funding plans” that consider a range of possible stress scenarios.
The CLF is intended to be a cornerstone of credit unions’ contingency planning, yet right now, without the restored agent membership authority, too many small credit unions are cut off from it. That’s not a small credit union problem. It’s a system problem. When one segment is left without a reliable credit union-backed liquidity safety net, it serves as yet one more divide between the larger and smaller credit unions – the haves and have-nots.
Why This Bill Is Just a Starting Point
While S. 2545 would make an important and immediate fix, I believe it’s just the beginning of what the CLF truly needs. This legislation would be a start, but the CLF needs a lot more modernization and resources to go from being a paper tiger to an active player in credit union liquidity.
In the post-U.S. Central liquidity landscape, the Federal Home Loan Bank has stepped up as a significant liquidity resource. The FHLB has a modern, streamlined lending infrastructure that has the responsiveness and timeliness to support real-time settlement-based borrowing. Nonetheless, there seems to be persistent talk about changes in the FHLB’s membership structure. The current CLF, with minuscule staffing and resources, cannot even approach this level of functionality, but it must move in this direction. Chip Filson has done some outstanding analysis in this area, see “What Credit Unions Can Learn from the FHLB System”; Just A Member Blog; March, 2024.
Points that have been discussed in recent years include:
1. Increase Lending Capacity and Flexibility. The CLF’s lending authority and operational flexibility have not kept pace with the evolving credit union system. Adjustments to its borrowing limits, collateral requirements and ability to respond swiftly in a crisis are overdue.
2. Direct Access for Corporate Credit Unions. The Corporate Credit Union Alliance has urged Congress to go a step further and allow corporate credit unions to borrow directly from the CLF for our own liquidity needs. This would strengthen the system as a whole, since corporates are often the first line of liquidity support for natural person credit unions.
3. Modernize Governance and Funding Mechanisms. The CLF’s structure was designed in 1979. While the cooperative ownership model is still sound, the governance, membership rules, and capital subscription requirements could be retooled for today’s environment without compromising safety and soundness.
4. Make Enhancements Permanent. Temporary authorities, while helpful, create uncertainty. Permanent statutory changes would give credit unions confidence to plan long-term around CLF participation.
A No-Cost, Proactive Solution
One of the strongest arguments for modernizing the CLF is that these changes impose no cost to taxpayers. The facility is capitalized and owned by its member credit unions, and loans are made on a fully secured basis.
The Corporate Credit Union Alliance’s July 29 letter to Senators Padilla and Cramer makes this point clearly: improving the CLF’s reach and flexibility strengthens systemic safety and soundness without drawing on public funds.
And perhaps most importantly, we have the luxury of pursuing these enhancements now, in a period of relative stability. Waiting until a crisis forces action risks repeating past mistakes where liquidity solutions came too late.
The Call to Action
I encourage credit union leaders, particularly our smaller institutions, to pay close attention to S. 2545. Reach out to your trade associations, engage with your legislators and help them understand why this matters to your credit union, its members (their constituents), and your communities.
Liquidity is not an abstract policy issue. It’s about ensuring that when your members need a loan, you can make it. It’s about maintaining trust in credit unions during volatile markets. And it’s about protecting the cooperative system we’ve built together.
LaCorp’s Commitment
At LaCorp, our mission has always been to strengthen our member credit unions through cooperative solutions. If this bill passes, and agent membership authority is restored, we will once again be ready to serve as an agent member of the CLF. We’ve done it before, and we know firsthand the difference it can make.
But we cannot stop there. We must continue advocating for the broader modernization the CLF needs to be a truly effective liquidity backstop for the 21st Century credit union system.
S. 2545 is a start. Let’s make sure it’s not the finish line.