[Federal Register Volume 76, Number 246 (Thursday, December 22, 2011)]
[Proposed Rules]
[Pages 79553-79558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-32720]


-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 741

RIN 3133-AD96


Maintaining Access to Emergency Liquidity

AGENCY: National Credit Union Administration (NCUA).

ACTION: Advance notice of proposed rulemaking with request for comment 
(ANPR).

-----------------------------------------------------------------------

SUMMARY: The NCUA Board (Board) requests public comment on the scope 
and requirements of a regulation to require federally insured credit 
unions (FICUs) to have access to backup federal liquidity sources for 
use in times of financial emergency and distressed economic 
circumstances. The Board also seeks comment on how such a regulation 
could be implemented to maximize economic benefit while minimizing 
regulatory burden on credit unions.

DATES: Send your comments to reach us on or before February 21, 2012. 
We may not consider comments received after the above date in making 
our decision on the ANPR.

ADDRESSES: You may submit comments by any one of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: Address to [email protected]. Include ``[Your 
name]--Comments on Advance Notice of Proposed Rulemaking for Part 741, 
Maintaining Access to Emergency Liquidity'' in the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: You can view all public comments on NCUA's Web 
site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as 
submitted, except for those we cannot post for technical reasons. NCUA 
will not edit or remove any identifying or contact information from the 
public comments submitted. You may inspect paper copies of comments in 
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an email to [email protected].

FOR FURTHER INFORMATION CONTACT: Lisa Henderson, Staff Attorney, Office 
of General Counsel, at the address above or telephone (703) 518-6540; 
or J. Owen Cole, Jr., Director, Division of Capital Markets, Office of 
Examination and Insurance, at the address above or telephone (703) 518-
6620.

SUPPLEMENTARY INFORMATION:

I. Background
II. General Discussion
III. Potential Regulatory Requirement
IV. Request for Comment

I. Background

a. Why may a rule be necessary?

    The recent financial crisis and lingering economic uncertainties 
require NCUA and credit unions to closely examine the adequacy of risk 
management programs and practices in FICUs, including liquidity. One of 
the vital lessons learned from recent events is that institutions, both 
financial and otherwise, need to have an inviolable liquidity backstop 
that is over and above primary sources of funding such as tapping 
market sources of credit or selling highly liquid assets. Absent a 
reliable backstop, institutions can suddenly be affected by unforeseen 
systemic liquidity events that render them incapable of funding normal 
daily operations and facing a rapidly accelerating risk of operational 
disruption and even failure. With the advent of corporate credit union 
(corporate) system reforms resulting from the crisis, the Board sees 
the changing role of corporates as a major impetus to revisit the 
manner in which emergency liquidity for the credit union system is 
maintained and accessed.
    Currently, virtually all FICUs have access to the Central Liquidity 
Facility (CLF or facility) by belonging to a corporate credit union 
that is in turn part of the agent group headed by U.S. Central Bridge 
Corporate Federal Credit Union (USC Bridge).\1\ USC Bridge temporarily 
holds CLF stock on behalf of the whole agent group, but USC Bridge will 
soon be winding down and closing.\2\ In the absence of an alternative 
arrangement, when USC Bridge redeems the CLF stock as part of its 
closure process, the majority of credit unions that enjoyed access to 
CLF through this agent relationship will no longer have the CLF as a 
source of backup liquidity. The corresponding reduction in the CLF's 
borrowing capacity would also reduce the credit union system's capacity 
to address a systemic liquidity event.
---------------------------------------------------------------------------

    \1\ NCUA established USC Bridge to provide an orderly transition 
in resolving the failure of U.S. Central Corporate Federal Credit 
Union, which had historically held the CLF capital stock on behalf 
of the majority of the credit union system.
    \2\ The closure of USC Bridge and corresponding redemption of 
CLF stock is expected to occur sometime in 2012. Though member 
institutions did contemplate creating a successor to USC Bridge, the 
plans for a potential successor never included holding the CLF stock 
and these plans are no longer being pursued.
---------------------------------------------------------------------------

    Based on June 30, 2011, Call Report data, most FICUs have no 
emergency liquidity source beyond indirect CLF membership by virtue of 
being a member of a corporate and USC Bridge holding the CLF capital 
stock. Only 1.3 percent of FICUs have direct membership in CLF, and 
only 4.5 percent of FICUs are set up to access the Federal Reserve 
Discount Window (Discount Window). While 14.6 percent of FICUs report 
being members of a Federal Home Loan Bank (FHLB), 27 percent do not 
hold any mortgage assets and would be unlikely to be able to rely upon 
the FHLB for wholesale funding or liquidity needs. More troubling, over 
90 percent of FICUs do not currently hold any U.S. Treasury 
obligations. Shorter

[[Page 79554]]

duration Treasury obligations are a key alternative source of 
contingent liquidity as they are readily marketable, even in times of 
widespread economic distress. For these reasons, the Board believes it 
is important to explore avenues for preserving credit unions' access to 
the CLF when USC Bridge can no longer serve as the primary agent, 
credit unions choose providers other than agent corporates of 
correspondent services, or continuing corporates do not take up CLF 
capital stock subscriptions on behalf of their members.
    The following information on FICUs relates to sources of contingent 
liquidity, other than CLF access, as of June 30, 2011.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Average,
                                                                                                            Percent  of   Average,U.S.   investments < 1
                  Credit union cohort                      Number     Percent of    Average       Median     total FICU    government     year maturity/
                                                                      all FICUs      assets       assets       assets     obligations/     total assets
                                                                                                                          total assets      (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
All FICUs.............................................        7,239        100.0      $130.2M       $18.6M        100.0             0.3             13.7
No Federal Reserve (Fed) Relationship.................        6,916         95.5        86.4M        17.0M         63.4             0.3             14.0
Neither Fed nor FHLBank Relationship..................        6,109         84.4        44.4M        13.1M         28.8             0.3             14.9
No U.S. Government Investments........................        6,622         91.5        90.1M        16.2M         63.3             0.0             14.0
Application Filed to Borrow from Fed..................          323          4.5     1,068.8M       393.3M         36.6             0.7              7.6
Collateral Pre-pledged with Fed.......................          238          3.3     1,224.0M       387.7M         30.9             0.6              7.2
FHLBank Member........................................        1,060         14.6       607.9M       238.2M         68.4             0.5              7.1
No Real Estate Loans..................................        1,990         27.5         4.8M         2.6M          1.0             0.3             17.8
No Investments........................................          658          9.1        21.9M         2.1M          1.5             0.1              0.0
< 1 Year in Maturity..................................
Direct CLF Member *...................................           95          1.3       333.6M        86.3M          3.4             0.6             12.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* As of December 9, 2011, the Central Liquidity Facility (CLF) had 98 direct members; 95 of these were federally insured. For consistency, non federally
  insured credit unions were excluded from this analysis.

b. How has NCUA addressed liquidity risk in the past?

    In March 2010, NCUA and the federal banking regulators (agencies), 
in conjunction with the Conference of State Bank Supervisors, issued a 
Federal Financial Institutions Examination Council Interagency Policy 
Statement on Funding and Liquidity Risk Management (Policy 
Statement).\3\ The Policy Statement summarized the principles of sound 
liquidity risk management. It emphasized the importance of cash flow 
projections, diversified funding sources, stress testing, cushions of 
liquid assets, and formal, well-developed contingency funding plans as 
primary tools for measuring and managing liquidity risk. The agencies, 
including NCUA, expect each financial institution to manage funding and 
liquidity risk using processes and systems commensurate with the 
institution's complexity, risk profile, and scope of operations.
---------------------------------------------------------------------------

    \3\ 75 FR 13656 (Mar. 22, 2010).
---------------------------------------------------------------------------

    In August 2010, the Board issued Letter to Credit Unions No. 10-CU-
14 disseminating the Policy Statement and re-emphasizing NCUA's 
expectation that FICUs manage liquidity risk using processes and 
systems commensurate with their own credit union's complexity, risk 
profile, and scope of operations. This new guidance supplements 
existing guidance the Board provided in an earlier Letter to Credit 
Unions No. 02-CU-05, Examination Program Liquidity Questionnaire, 
issued in March 2002.

II. General Discussion

a. What is liquidity?

    Liquidity is a credit union's capacity to meet its cash and 
collateral obligations at a reasonable cost. Maintaining an adequate 
level of liquidity depends on the credit union's ability to efficiently 
meet both expected and unexpected cash flow and collateral needs 
without adversely affecting either daily operations or the financial 
condition of the credit union.

b. What is liquidity risk?

    Liquidity risk is the risk that a credit union's financial 
condition or overall safety and soundness is adversely affected by an 
inability, or perceived inability, to meet its obligations. A credit 
union's obligations, and the funding sources used to meet them, depend 
significantly on its business mix, balance sheet structure, and the 
cash flow profiles of its on- and off-balance sheet obligations. In 
managing their cash flows, credit unions confront various situations 
that can give rise to increased liquidity risk. These include funding 
mismatches, market constraints on the ability to convert assets into 
cash or in accessing sources of funds (i.e., market liquidity), and 
contingent liquidity events. Changes in economic conditions or exposure 
to credit, market, operation, legal, and reputation risks also can 
affect an institution's liquidity risk profile and should be considered 
in the assessment of liquidity and asset/liability management.

c. How can liquidity risk be managed?

    Credit unions can manage liquidity risk by maintaining:
     Adequate levels of highly liquid marketable securities 
that can be used to meet liquidity needs in stressful situations;
     An appropriately diverse mix of existing and potential 
future funding sources; and
     Access to a contingent liquidity provider (i.e., a 
specialized liquidity provider that serves as a backup to market 
sources).
    Failure in any of these factors may result in an unsafe and unsound 
liquidity condition. As noted in the Policy Statement:

    Recent events illustrate that liquidity risk management at many 
financial institutions is in need of improvement. Deficiencies 
include insufficient holdings of liquid assets, funding risky or 
illiquid asset portfolios with potentially volatile short-term 
liabilities, and a lack of meaningful cash flow projections and 
liquidity contingency plans.

75 FR 13656, 13660 (Mar. 22, 2010) (emphasis added).

d. Why should a credit union have a liquidity contingency plan?

    Credit unions need to have access to sources of emergency liquidity 
from

[[Page 79555]]

both their own balance sheets and through credit facilities. The recent 
financial crisis has underscored the paramount importance of liquidity 
access during times of extreme financial instability. It has also 
emphasized the essential role played by specialized liquidity 
facilities like CLF and the Discount Window when those facilities may 
be the only entities willing and capable of providing liquidity loans 
to destabilized institutions, that is, when no other market sources of 
funds are available. When a depository institution exhibits liquidity 
problems and its credit providers have uncertainty about its true 
financial condition, that institution's ability to obtain credit can 
rapidly diminish or cease altogether. The inability of a depository 
institution to fund its business-as-usual operations by borrowing can, 
in turn, cause its ultimate insolvency and failure if, for example, it 
were forced to sell assets at distressed prices to raise necessary 
funds. In the recent financial crisis, even institutions that were 
healthy used emergency liquidity facilities when risk aversion reduced 
the availability of even short-term liquidity and funding costs became 
prohibitively high. Without access to governmental liquidity 
facilities, it is clear that the scope of the financial crisis and 
damage to the economy would have been much more severe.
    Governmental liquidity facilities were created by Congress to 
provide a stability mechanism and thereby preempt illiquidity 
situations before they lead to unnecessary insolvencies or cause 
systemic disruptions to the depository industry. This is because 
depository institutions are a key element of financial services and the 
overall economy. Federal entities that exist to provide liquidity 
assistance are unique in their capacity to obtain funding in times of 
crisis and this is based on their backing by the full faith and credit 
of the U.S. government. These liquidity facilities are viewed as the 
ultimate backstop for institutions seeking emergency liquidity in time 
of need and have proven to be a critical component of the U.S. 
government's contingency management during times of widespread 
instability.
    By way of example, CLF figured prominently in NCUA's contingency 
plans during the recent financial crisis. Through various contingency 
programs, such as the Credit Union System Investment Program, the 
Credit Union Homeowners Affordability Relief Program, and loans to the 
National Credit Union Share Insurance Fund (NCUSIF), CLF facilitated 
access to billions of dollars of external liquidity through its 
borrowing arrangements with the Federal Financing Bank. These programs 
totaled approximately $18.4 billion and were orchestrated during the 
period between December 2008 and March 2009. Total CLF activity during 
the height of the crisis reached as much as $20.5 billion, including 
approximately $2.1 billion in liquidity-need loans outstanding. By 
having ready access to contingent liquidity through CLF, NCUA was in a 
position to inject a critical amount of emergency liquidity into the 
credit union system. These liquidity injections helped stabilize 
confidence and gave NCUA time to work through the financial 
difficulties arising from the failure of the system's largest corporate 
credit unions. They, combined with other actions taken by the Board, 
were instrumental in maintaining the continuity of vital credit union 
services and helped avert higher potential losses to the system.
    The level of CLF membership (subscribed capital stock) has a major 
impact on the facility's capacity to meet systemic liquidity demands. 
CLF's legal maximum borrowing amount, and in turn the maximum amount it 
can lend to its members or NCUSIF, is based on the amount of its total 
subscribed capital stock and surplus. By statute, the facility can 
borrow $12 for every $1 dollar of subscribed capital stock and surplus; 
so, any declines in capital stock have a corresponding 12-1 
deleveraging effect on CLF's ability to borrow. Throughout the recent 
crisis, CLF was essentially fully subscribed because the agent group 
arrangement covers almost all natural person credit unions that are not 
direct members.
    The table below shows the calculation of CLF's current maximum 
legal borrowing authority based on October 31, 2011, financial data. It 
compares that amount to the borrowing authority without the agent stock 
currently held by USC Bridge.

[[Page 79556]]

[GRAPHIC] [TIFF OMITTED] TP22DE11.080

III. Potential Regulatory Requirement

a. How would a rule work?

    The Board is intending to issue a regulation that would require 
federally insured credit unions, as part of their contingency funding 
plans, to have access to backup federal liquidity sources for use in 
times of financial emergency and distressed economic circumstances. The 
Board is contemplating requiring this access be demonstrated by a 
credit union in one of four ways: (1) Becoming a member in good 
standing of CLF directly; (2) becoming a member in good standing of CLF 
through a corporate credit union; (3) obtaining and maintaining 
demonstrated access to the Discount Window; or (4) maintaining a 
certain percentage of assets in highly liquid Treasury securities. If 
promulgated, the regulation would be added to NCUA's regulation on 
Requirements for Insurance in 12 CFR part 741 so as to apply uniformly 
to both federal and state-chartered credit unions.

b. What does the CLF do and how does it operate?

    CLF is available to help credit unions meet their liquidity needs. 
CLF has served as the credit union system's backup liquidity source 
since its creation in 1979.\4\ Essentially, CLF provides a form of 
liquidity insurance to its member credit unions through its ability to 
make liquidity advances to member credit unions funded with matched 
borrowings from the Federal Financing Bank.\5\ As of October 31, 2011, 
CLF is permitted to lend up to its statutory limit, currently 
approximately $50 billion.\6\
---------------------------------------------------------------------------

    \4\ National Credit Union Central Liquidity Facility Act, 
subchapter III of the Federal Credit Union Act, 12 U.S.C. 1795-
1795k. The regulations implementing the CLF Act appear at 12 CFR 
part 725.
    \5\ The Federal Financing Bank (FFB) is a government 
corporation, created by Congress in 1973 under the general 
supervision of the Secretary of the Treasury. The FFB was 
established to centralize and reduce the cost of federal borrowing, 
as well as federally-assisted borrowing from the public. 87 STAT. 
937, 12 U.S.C. 2281.
    \6\ CLF may borrow from any source, provided that the total face 
value of these obligations shall not exceed twelve times the 
subscribed capital stock and surplus of the facility 
($4,169,797,555.83 as of October 31, 2011). 12 U.S.C. 1795(a)(4)(A).
---------------------------------------------------------------------------

    Nearly all federally insured and some non-federally insured credit 
unions currently qualify as members of CLF indirectly through USC 
Bridge, as agent group representative. A credit union must belong to 
CLF and primarily serve natural persons (i.e., not a corporate) to be 
eligible for a liquidity-need advance. A credit union primarily serving 
natural persons may become a ``regular'' member of the facility by 
subscribing to the capital stock of the facility. The stock 
subscription amount for a regular member is equal to one-half of one 
percent of the credit union's paid-in and unimpaired capital and 
surplus. 12 U.S.C. 1795c(a); 12 CFR 725.3. There are 96 regular members 
of CLF. A credit union or group of credit unions primarily serving 
other credit unions may become an agent member of the facility by 
obtaining approval from the Board and subscribing to the capital stock 
of the facility on behalf of credit unions in its membership that are 
not regular members.\7\ Currently, there is one agent group 
representative and 23 agent members within that group. The agent stock 
amount is adjusted no less

[[Page 79557]]

often than annually to reflect changes in the underlying balance sheets 
of member natural person credit unions.\8\
---------------------------------------------------------------------------

    \7\ The stock subscription amount for agent members is equal to 
one-half of one percent of the paid-in and unimpaired capital and 
surplus of all those credit unions primarily serving natural 
persons, which are members of the corporates within the agent group, 
but which are not regular members of CLF. 12 U.S.C. 1795c(b)(2); 12 
CFR 725.4.
    \8\ 12 U.S.C. 1795c(c); 12 CFR 725.5(b).
---------------------------------------------------------------------------

    Historically, the vast majority of natural person credit unions 
have not elected to become regular members. Instead, they have 
qualified for membership in CLF by joining a corporate credit union 
that was in turn a CLF agent and part of the agent group headed by USC 
Bridge. As the agent group representative, USC Bridge subscribed to, 
and absorbed the costs of, capital stock on behalf of all underlying 
natural person credit unions represented by the respective corporates 
in USC Bridge's agent group. While there is not an explicit charge to 
natural person credit unions that are covered by the agent group, 
credit unions have supported the cost of the stock through ownership of 
corporate credit unions, which in turn own USC Bridge. The cost of 
supporting CLF ownership is embedded in the investment returns and 
services extended by USC Bridge to the corporates, which provide 
returns and services to the very natural person credit unions that are 
conferred CLF access by this arrangement.
    The credit unions that join CLF directly (regular members) 
subscribe to capital stock in an amount of one half of the required 
capital subscription (which equals one half of one percent of the 
credit union's unimpaired capital and surplus) to CLF. The CLF capital 
stock is held as an asset on the subscribing credit union's books and 
receives quarterly dividend distributions at rates determined by the 
Board.\9\ When circumstances require that all or a portion of a 
member's stock be redeemed by the facility, the Board is required by 
statute to return an amount equal to what the subscribing credit union 
originally paid for the stock less any amount owed by the member to the 
facility.\10\ A member of the facility whose capital stock subscription 
constitutes less than 5 percent of stock outstanding may withdraw from 
membership six months after notifying the Board of its intention to do 
so.\11\
---------------------------------------------------------------------------

    \9\ See 12 CFR 725.5(e).
    \10\ 12 U.S.C. 1795d(c).
    \11\ 12 U.S.C. 1795c(e)(1); 12 CFR 725.6(a).
---------------------------------------------------------------------------

    In order to obtain a liquidity advance, a member must meet two 
conditions: (1) It must have a valid liquidity need; and (2) it must 
meet minimum creditworthiness standards at the time of its request.\12\ 
``Liquidity needs'' means the needs of a credit union primarily serving 
natural persons for:
---------------------------------------------------------------------------

    \12\ A credit union generally is creditworthy if the credit 
union is viable and not in danger of failing. 12 CFR 725.18. The 
regulations also require that each advance must be secured by a 
first priority security interest in assets of the borrowing credit 
union. Such assets must have a net book value of at least 110% of 
all amounts due under the applicable CLF advance. 12 CFR 725.19.
---------------------------------------------------------------------------

    (1) Short-term adjustment credit available to assist in meeting 
temporary requirements for funds or to cushion more persistent outflows 
of funds pending an orderly adjustment of credit union assets and 
liabilities;
    (2) Seasonal credit available for longer periods to assist in 
meeting seasonal needs for funds arising from a combination of expected 
patterns of movement in share and deposit accounts and loans; and
    (3) Protracted adjustment credit available in the event of unusual 
or emergency circumstances of a longer term nature resulting from 
national, regional, or local difficulties.\13\
---------------------------------------------------------------------------

    \13\ 12 U.S.C. 1795a(1); 12 CFR 725.2(i). CLF Operating 
Circulars 99-1 and 99-2 provide information on lending procedures 
and the application forms.
---------------------------------------------------------------------------

    By law, credit unions cannot use CLF loans to expand their 
portfolio of loans or investments.\14\
---------------------------------------------------------------------------

    \14\ 12 U.S.C. 1795e(a)(1).
---------------------------------------------------------------------------

c. Why is credit union access to the CLF changing?

    The operating status of USC Bridge is temporary and as part of its 
orderly resolution, it will soon discontinue its role as CLF agent 
group representative in conjunction with the wind down of its 
operations. Accordingly, the existing agent group arrangement will also 
terminate. When that occurs, the vast majority of natural person credit 
unions that are not regular members of CLF will need to take the 
necessary steps to establish new membership arrangements, as either a 
regular member or with a new agent, such as another corporate, if they 
intend to utilize CLF as their contingent liquidity source.
    NCUA is working with CLF agents (corporates) to allow for the 
orderly transfer of the corresponding portion of CLF capital stock now 
held by USC Bridge to any retail corporates that elect to buy stock as 
agents on behalf of their natural person credit union members. A credit 
union continues to have a choice of obtaining access to CLF by either 
becoming a regular (direct) member or by belonging to an agent member 
that has purchased CLF stock on its members' behalf.

d. Can credit unions use the Discount Window?

    The Discount Window is an alternative source for meeting credit 
unions' contingent liquidity needs. Only depository institutions that 
maintain reservable transaction accounts (share draft accounts for 
credit unions) or nonpersonal time deposits (share certificates or 
money market share accounts held by a depositor other than an 
individual) may establish borrowing privileges at the Discount Window. 
Eligibility to borrow is not dependent on or related to the use of 
Federal Reserve priced services.
    The Discount Window helps to relieve liquidity strains for 
individual depository institutions and for the banking system as a 
whole by providing a source of funding in time of need. There are three 
credit programs: (1) Primary, (2) secondary, both discussed below, and 
(3) seasonal.\15\ Discount Window loans must be secured by collateral 
acceptable to the lending Federal Reserve Bank. Much of the statutory 
framework that governs Discount Window lending is contained in section 
10B of the Federal Reserve Act, as amended, 12 U.S.C. 461. The program 
and policies that implement the statutory framework are set forth in 
Regulation A, 12 CFR part 201.
---------------------------------------------------------------------------

    \15\ Seasonal credit is available to depository institutions 
that can demonstrate a clear pattern of recurring intra-yearly 
swings in funding needs.
---------------------------------------------------------------------------

    The primary credit program is the principal safety valve for 
ensuring adequate liquidity in the banking system and a backup source 
of short-term funds for generally sound depository institutions. 
Primary credit is available on a very short-term basis, typically 
overnight, at a rate above the Federal Open Market Committee's target 
rate for federal funds. Normally, primary credit will be granted on a 
``no-questions-asked,'' minimally administered basis. There is no 
restriction on a borrower's use of primary credit.
    Priced slightly higher, secondary credit is available to meet 
backup funding needs of depository institutions that do not qualify for 
primary credit. It may be used as a backup source of funding on a very 
short-term basis, usually overnight, or to facilitate an orderly 
resolution of serious financial difficulties. It entails a higher level 
of administration. Regulation A publishes a table of the interest rates 
for primary and secondary credit available from each Federal Reserve 
District Bank. 12 CFR 201.51.
    While the CLF is a special liquidity facility for the credit union 
industry, the Discount Window serves all depository institutions that 
meet eligibility requirements established by Federal Reserve 
regulations. To gain access to the discount window, the Federal

[[Page 79558]]

Reserve requires specific agreements to be executed. Information 
regarding these agreements, as set forth in Operating Circular No. 10, 
and Discount Window operation can be found at 
www.frbdiscountwindow.org. These agreements include arrangements for 
the pledging of collateral to secure advances. All extensions of credit 
must be secured to the satisfaction of the lending Federal Reserve Bank 
by collateral that is acceptable for that purpose. Depository 
institutions that do not envision using the Discount Window in the 
ordinary course of events are encouraged to execute the necessary 
documents because a need for Discount Window credit could arise 
suddenly and unexpectedly.

IV. Request for Comment

    This is a crucial time for depository institutions, including 
credit unions, to reflect on the recent financial crisis and ongoing 
economic events and address potential deficiencies in their funding and 
liquidity risk management capabilities. Access to a contingent 
liquidity provider that can back up market sources of liquidity is an 
essential component of these capabilities that must be met. Credit 
unions can use membership in CLF or access with a Discount Window 
facility (and/or a combination of the two) to meet this need. Since USC 
Bridge will need to discontinue its role as a CLF agent member 
intermediary, a credit union currently covered under an agent 
membership (i.e, by belonging to a retail corporate credit union) will 
lose access to CLF unless it takes action to become a regular member or 
join a new agent member that acquires CLF membership stock on the 
credit union's behalf.
    The Board invites comment on the issues raised in this ANPR. To 
facilitate consideration of the public's views, please address your 
comments to the questions set forth below on each issue, and organize 
and identify them by corresponding question number so that each 
question is addressed separately. To maximize the value of public input 
on each issue, it is also important that commenters provide and explain 
the reasons that support each of their opinions. There will be a 
further opportunity to comment on these issues should the Board issue a 
proposed rule.
    (1) What are the standards and provisions, along with associated 
considerations, that should accompany a requirement for federally 
insured credit unions to maintain access to backup federal liquidity 
sources for use in times of financial emergency and distressed economic 
circumstances? Should an NCUA requirement to maintain access to backup 
federal liquidity sources contain an exemption for credit unions under 
a certain asset threshold, and if so, what should that threshold be?
    (2) Are there other sources of credit beyond the CLF and Discount 
Window the Board should consider as acceptable to satisfy the need for 
a backup federal liquidity source? For example, would a credit union's 
maintenance of a certain percentage of its assets in highly liquid 
(maturity of 90 days or less) Treasury securities satisfy the need? If 
so, what is the appropriate percentage? Also, how should NCUA ensure 
that these securities are available to be pledged or sold?
    (3) How can CLF best play a role in the immediate term upon USC 
Bridge's wind down and over the long term in satisfying a credit 
union's need for a contingency liquidity source? How should that role 
be executed? Are changes to the CLF statute to modernize the way the 
CLF functions over the long term warranted, and if so what changes 
should be pursued? For example, should the CLF function more like the 
Discount Window?
    (4) What is the best way for credit unions to access CLF (e.g., 
either directly or through an agent)? Should corporate credit unions 
continue to play a role and, if so, to what extent should they be 
encouraged to purchase CLF stock as agents for natural person credit 
unions?
    The Board also seeks comment on how a proposed rule could be 
implemented to maximize economic benefit while minimizing regulatory 
burden on credit unions. Please comment on any other relevant issues 
the Board has not considered.

    By the National Credit Union Administration Board on December 
15, 2011.
Mary F. Rupp,
Secretary of the Board.
[FR Doc. 2011-32720 Filed 12-21-11; 8:45 am]
BILLING CODE 7535-01-P