Redeemable Upon Demand

When will the CLF return $1.9 billion in capital stock funds that belongs to credit unions?


The Central Liquidity Facility is a critical area for credit union system reform. Managed by the NCUA, the CLF is a mixed ownership corporation that failed in its statutory purpose of responding to credit union liquidity needs in the most serious financial crisis since World War II. Now, following the miracle of accounting interpretation, the fund is trying to figure out how to retain $1.9 billion of credit union funds.

These funds are the CLF’s primary capital base and belong to credit unions. They are the one-quarter of 1% that credit unions sent to their corporate as an “agent member” when each credit union subscribed to its corporate’s membership capital shares. Each corporate, in turn, sent an equivalent amount to U.S. Central. As the “group agent,” U.S. Central subscribed to the required capital stock and gave all credit unions access to the CLF. This capital stock is redeemable upon demand by the members.

This arrangement had been in effect since 1984; the NCUA Board has renewed it numerous times. Every year through 2007 audits for both U.S. Central and the CLF confirmed the arrangement met generally accepted accounting standards. 

These funds, which the CLF traditionally re-deposited in shares and certificates with U.S. Central at market rates of interest, are now invested in the U.S. Treasury and earn interest at the government’s rate of borrowing. 

According to the CLF’s February 28, 2011, financial statement, the facility has no loans outstanding; however, it continues to increase retained earnings of more than $22 million. There also is an additional $70 million of capital stock from credit unions that chose to join the CLF directly rather than via their corporate. 

Missing in Action
In September of 2008, at the height of the financial crisis, credit unions asked Congress to increase the annual appropriation of the CLF from the initial FY appropriation amount of $1.5 billion to the $41 billion maximum (twelve times subscribed capital).

Despite repeated requests by both corporate and natural person credit unions, the CLF refused to loan to corporates and failed to work with credit unions to provide the protracted credit relief proposed by groups such as the Housing Roundtable.  

Based on FOIA requests, we now know corporates as well as numerous natural person credit unions were able to borrow from the Federal Reserve. The CLF was missing in action at the most critical time in the crisis, despite Congress’ authorization of the maximum amount of borrowing under the statute.  

An Insolvent Institution at December 2008
In June of 2010, NCUA released the audited financial statements for the CLF for December 2008. According to the auditor, Deloitte & Touche, the CLF had a negative equity of ($456,000), which means the CLF had no capital and therefore was legally unable to borrow.  At the same time, the CLF reported $1.5 billion in loans on its balance sheet. 

Deloitte’s March 15, 2010, audit opinion would not allow the CLF to stay in business, so it needed a different audit and financial presentation.  To undo the auditor’s opinion on the December 2008 balance sheet, the CLF unilaterally and retrospectively reclassified the accounts in U.S. Central as a loan instead of investments. Although all of the shares and deposits in U.S. Central, and all other corporates, were guaranteed in January of 2009 by the NCUSIF, the CLF still maintained there was “reasonable doubt as to the ability and intent of USC to repay CLF’s invested funds,” according to a Sept. 24, 2009, Board Action Memorandum by CLF President Owen Cole.

In December 2009, a new auditor, KPMG, issued an unqualified opinion saying CLF is solvent with capital of $1.832 billion. There is no comparative financial presentation from the 2008 Deloitte audit in KPMG’s report. Through the miracle of accounting, the CLF fully restored credit union members’ capital and "safely" invested it in the U.S. Treasury.  But is it safe?

Today’s Situation
The CLF has $1.7 billion of credit union member shares and is trying to figure out what to do. The majority of credit unions’ agent member accounts are in corporates that have been conserved and their capital extinguished. But the CLF funds were sent to the corporates in an agent capacity — only a loss at the CLF, where they are sent as capital, could extinguish them. 

The corporates are trying to meet new capital standards, so where does this $1.9 billion come in? The CLF wants to hold onto the funds so it can stay in business, despite the fact it has no loans. Can it somehow reconnect these account relationships with corporates to maintain the appearance of membership in order to hold onto the funds?  

Why would credit unions want to re-capitalize the CLF versus having their funds returned? Many credit unions find the FHLB, even with its capital requirements, the Fed Reserve, and other credit unions more dependable sources for borrowing. 

At .25% of credit union shares, each credit union would receive $250,000 per $100 million of shares — all of which would go into retained earnings, assuming the credit unions have written off their membership capital shares. If the membership capital shares still exist, then the funds would go back to the corporates, as agents, for redistribiution to their credit union members.

NCUA’s actions in nationalizing the corporate system have dismantled the liquidity pillar that was critical to credit union performance during the financial crisis. (Read more in "When the River Runs Dry: The Dismantling of the Credit Union System's Liquidity Foundation") The CLF was not responsive to corporate or natural person credit union proposals during the crisis. NCUA at first maintained it could not lend to corporates. It then borrowed $10 billion in March 2009 for loans to U.S. Central and WesCorp after conservatorship … months after the peak of the liquidity crisis.  

Reform First, Then Funding
For credit unions to continue to support the CLF with capital funds there must be significant institutional reform. Credit unions must become part of the governance structure similar to the FHLB’s boards. CLF’s role for natural person credit unions and corporate credit unions must be clear. At the moment, CLF is just an arm of regulatory control. Credit unions have other options, ones in which they have a say and can negotiate appropriate terms for lines of credit. 

Until these reforms are in place, credit unions should ask the CLF to return their deposits. That $1.9 billion belongs to credit unions and using it to support member loans would be more productive than allowing it to sit in the U.S. Treasury.




April 11, 2011


  • Once again Chip has concisely nailed the failure of our insurer/regulator to act in a timely manner to meet our needs. Our corporate, Cencorp and the FHLBI did. Why do we need the CLF??
    Tom Zamberlan
  • Great article! What is the next step for us to get our money? For those CUs pulling out of corporates will we forgo getting our money back or will NCUA write a check to us directly.
    Jay Lewis
  • The CLF is a joke!
  • Very eye-opening information. Thank you.