NCUA regulation § 741.12(a) requires all FICUs to establish a written, board-approved liquidity policy that governs how the credit union manages its daily operating cash needs, meets forecasted liquidity shortfalls, responds to unforeseen liquidity events, and lists contingent sources of funding under adverse circumstances.
Per NCUA regulation § 741.12(c), FICUs with $250 million or more in assets must have access to alternate sources of federal emergency liquidity for use in times of financial emergency and distressed economic conditions. The NCUA encourages all credit unions to establish access, even those under the $250 million threshold, especially if they have high ratios of loans-to-shares or loans-to-assets. Credit unions with $250 million or more in assets may demonstrate access to a contingent federal liquidity source by maintaining membership in the NCUA's CLF and/or establishing a relationship at the Federal Reserve's Discount Window.
Prudent credit unions assess the timing and duration of borrowing needs when determining the appropriate federal emergency funding source(s). The Discount Window is designed to handle sudden emergencies or operational issues that require short-term contingent federal liquidity, including same-day access. The CLF is designed to handle sustained emergencies or operational issues that require contingent federal liquidity for a few days up to several months.
To provide the greatest protection, a credit union may use a combination of the Discount Window and CLF. For example, in a liquidity crisis where balance sheet and market sources are not enough, a credit union might access large amounts of federal backup liquidity immediately through the Discount Window. In addition, if emergency liquidity needs persist for more than a few days, a credit union would have the flexibility to maintain federal backup liquidity through the CLF for up to several months at a time.
People to Interview
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President/Manager
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Chief Financial Officer
Documents to Review
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Balance sheet
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Liquidity Policy
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List of contingency funding sources
Questions to Consider
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Does the credit union’s policy meet the regulatory requirements in accordance with the credit union’s asset size?
Last updated August 30, 2021
