ARLINGTON, Va.–NAFCU has sent a letter to NCUA indicating strong support for a proposed rule to amend Part 704 of the agency’s regulations on corporate credit unions, but also reiterated its position that credit unions should be repaid for assessments paid related to the corporate CU losses.
The proposal would exclude Central Liquidity Facility (CLF)-related bridge loans from Part 704’s aggregate unsecured lending limit.
NAFCU said the proposal will provide much-needed relief from Part 704’s aggregate lending limit without increasing risk exposure to natural person credit unions or the National Credit Union Share Insurance Fund.
Specifically, noted NAFCU Director of Regulatory Affairs Alicia Nealon, the proposal would define “CLF-related bridge loan” as a loan funded by a Corporate for a term not to exceed 10 business days to a natural-person credit union that has been approved for an advance from the CLF and is awaiting funding. In addition, the proposal would exempt these loans from the calculation of “net assets” and “net risk weighted assets” for determining minimum capital requirements for Corporates.
"As the agency recognizes, CLF-related bridge loans allow Corporates to serve as a liquidity provider to their natural person credit union members during times when natural person credit unions are awaiting funding from the Federal Financing Bank and the CLF,” Nealon wrote. “Because advances from the United States Department of the Treasury can take up to 10 business days to fund, these loans play a critical role in expediting the delivery of funds to the borrowing natural person credit unions. These loans, however, are short-term and have a guaranteed payment source, thereby making them a non-credit risk for Corporates.”
But NAFCU also used the letter to reiterate its concerns with other aspects of efforts to wind-down the corporate resolution effort. Noting that since the Temporary Corporate Credit Union Stabilization Fund was established in 2011, natural person credit unions have paid more than $4.8 billion in assessments, the trade group said.
“We believe that credit unions deserve to be repaid for the hefty assessments they paid to cover the cost of the corporate losses on mortgage-backed securities. Further, we believe there needs to be more clarity as to the disposition of the assets held by the Asset Management and Assistance Center. Because NCUA has indicated that the agency is unable to refund credit unions for their assessments until the fund has repaid all of its obligations, NAFCU believes it is of paramount importance that NCUA transparently communicate the agency’s strategy and timeline for satisfying the TCCUSF’s deposit and borrower guarantees.”