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NCUA Board Finalizes Liquidity Rule
Friday, October 25, 2013 9:40 AM

The National Credit Union Administration (NCUA) Board of Directors convened its ninth scheduled open meeting of 2013 at the agency’s headquarters yesterday, and unanimously approved three items, including a final rule requiring all federally insured credit unions to plan for liquidity events. Credit unions with assets exceeding $250 million need to have access to NCUA’s Central Liquidity Facility, the Federal Reserve’s Discount Window, or both.

“This rule is part of a global regulatory effort to promote sound liquidity risk management,” NCUA Board Chairman Debbie Matz said. “Financial institutions need to maintain ample liquidity to withstand unexpected contingency events. This rule will strengthen individual credit unions and, as a result, the entire system.”

The final rule establishes a three-tiered framework for credit unions:

  • Under $50 million - Federally insured credit unions in this group must maintain a basic written liquidity policy. Approved by a credit union’s board, the policy must provide a framework for managing liquidity and a list of contingent liquidity sources that can be employed in emergency situations.
  • $50 million or more - In addition to a written liquidity policy, federally insured credit unions in this group must have a contingency funding plan that clearly sets out strategies for meeting emergency liquidity needs.
  • $250 million or more - In addition to a written liquidity policy and contingency funding plan, federally insured credit unions in this group must establish access to at least one contingent federal liquidity source: NCUA’s Central Liquidity Facility, the Federal Reserve’s Discount Window, or both.

“This final rule requires credit unions to plan for the future, because they no longer automatically have access to more than $40 billion in emergency liquidity through the Central Liquidity Facility,” Matz added. “NCUA does not have a preference for whether credit unions choose the Central Liquidity Facility or the Discount Window. In fact, having access to both would provide the greatest protection in a sudden and sustained liquidity emergency.”

The Discount Window is designed to handle sudden emergencies that require same-day access to funds. The Central Liquidity Facility is designed to handle sustained emergencies that require federal backup liquidity for up to several months.

The agency first sought comments on emergency liquidity options in December 2011, and the board voted to issue a proposed rule for comment in July 2012.

Matz noted the final rule provides a measure of regulatory relief by raising the highest asset threshold, which requires access to a federal liquidity provider, to $250 million from the $100 million in the proposed rule. As a result, 771 federally insured credit unions with 80 percent of the industry’s assets would need to maintain access to a federal liquidity provider. Because 397 of these credit unions already have such access, just 374 credit unions would need to establish relations with NCUA’s Central Liquidity Facility or the Fed’s Discount Window.

Effective March 31, 2014, the final rule is available online here. NCUA will issue a Letter to Credit Unions with further guidance and other educational material to assist credit unions in understanding and complying with the new rule, including recommended monthly steps needed to implement the rule.

Other actions items include:

  • A final rule requiring all federally insured credit unions to electronically file Call Report information with NCUA. The rule will reduce operating costs and result in more accurate and timely credit union data.
  • A proposed rule to protect the National Credit Union Share Insurance Fund by requiring annual stress tests at federally insured credit unions with assets exceeding $10 billion.