NAFCU calls on Congress, Fed to address CU concerns ahead of hearing

Today, Federal Reserve Chairman Jerome Powell will testify before the House Financial Services Committee during the first of two hearings on the Federal Reserve’s monetary policy. NAFCU Vice President of Legislative Affairs Brad Thaler wrote to the committee ahead of the hearing to voice many of the association’s perspectives on the Fed’s Overnight Reverse Repo Facility (ON RRP), the development of a central bank digital currency (CBDC), and more.

Thaler expressed concerns with the current rate offered by the Fed’s ON RRP, stating it “is draining deposits from credit unions.”

“Despite ongoing efforts to reduce the Federal Reserve’s balance sheet, the ON RRP interest rate continues to attract money market funds because its current level is set only slightly below the IORB rate,” wrote Thaler. “This form of subsidization for uninsured depositors allows money market funds to offer higher rates than the market would ordinarily support and continues to place pressure on credit union liquidity.”

Thaler encouraged lawmakers to investigate the relationship between the rate offered by the ON RRP and its impact on depository institution funding, as well as seek input from the Federal Reserve on whether it may be necessary to reduce the rate offered by the ON RRP to reduce outflows of money from depositories.

 

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