Managing liquidity will be an ongoing priority during the interest rate transformation now being led by the Federal Reserve.
Today I want to show how credit unions have prepared.
Relying on a Cooperative System
Credit unions managing 74% of assets ($1.57 trillion) use the FHLB system. To borrow from the banks, credit unions must invest in a bank’s capital with borrowings a multiple of their contribution.
As cooperatives, the banks are owned by their members, pay a dividend on the capital and offer multiple borrowing, hedging and funding options.
These 1,271 credit unions report a total of advised lines of credit of $288.1 billion at June 30, 2022.
The credit union funded CLF at June 30 reports total membership 349 regular members plus 10 corporate agents which have funded the CLF capital requirements for their members with less than $250 million in assets.
The total CLF capital contributions represent approximately 26.2% of all credit union shares as of June 30.
In addition the CLF has total borrowing authority of $29.7 billion but has no advised lines of credit with credit unions. This lending capacity, if fully utilized would equal just 10.3% of the total advised lines credit unions report from the FHLB system.
Two Observations
Credit unions rely on the cooperatively designed, privately managed FHLB with boards elected by the owners, as their primary source of external liquidity.
The CLF, specifically designed for credit unions, has not evolved to respond to credit union needs. The CLF managed by NCUA has no credit union representation or programs to encourage credit union involvement.
There have been no loans from the CLF to credit unions since 2010. At that time the two most significant loans were initiated by NCUA as part of their corporate conservatorships of US Central and WesCorp. These two borrowings were for $ 5 billion dollars each, guaranteed by the NCUSIF.
In the upcoming period of enhanced liquidity management, credit unions are turning to the organizations they own and can rely on.