Press
Government shutdown raises concerns about sources for liquidity
For credit unions, no CLF and ultimate dependence on banks and government sources for liquidity could threaten cooperative industry, says Co-Ops for Change just-released report
WASHINGTON, DC (October 24, 2013) — A new analysis by Co-Ops for Change raises red flags regarding the industry’s ability to access liquidity if a systemic or limited crisis were to occur. As reflected by the congressional stalemate that led to the 16-day shutdown of the U.S. Government, reliance on government funding is uncertain – and, given the temporary budget fix by Congress, it looks to continue that way for some time.
“With the dismantling of the CLF and new regulatory restrictions on corporates, credit unions have largely turned to outside sources for liquidity backup,” said Chip Filson, Founder of Co-Ops for Change and Chairman of Callahan & Associates. “Unfortunately, banks and government entities don’t view the sustainability of the cooperative system as their primary responsibility. Moreover credit unions’ tax-exempt status is an ‘anomaly’ in the eyes of Treasury and the banking system.”
The report notes that more than 90 percent of credit union investments are now directed outside the system. For example, mid-year numbers compiled by Callahan & Associates show credit unions’ bank investments total $48.6 billion – more than twice the $22.2 billion now held in their own corporates, due to a continued lack of confidence and NCUA’s stricter rules, which marginalized corporates’ ability to provide liquidity.
“Despite Corporates’ 25 years of providing a reliable, self-funded liquidity safety net for the industry, NCUA’s regulatory reform has diminished the role of Corporates and driven liquidity out of the system,” said Filson.
Another uncertainty involves government borrowing as it relates to the industry’s two remaining liquidity lines: what’s left of the CLF, now funded at only $2 billion, and the unused balance of the TCCUSF. With several members of Congress suggesting a government default on its bills would be insignificant to the country, ongoing access to these liquidity options remains questionable.
“Our industry has been pushed into relying on government funding not self-help,” said Filson. “And, given the political gamesmanship being played out in Washington, this reliance should raise serious questions for all credit unions about the cooperative system’s sustainability. It’s time that all parties revisit the need for an industry-funded liquidity solution.”
To download the paper, “Washington’s Governance Problems Offer a Vital Lesson for Credit Unions,” visit www.coops4change.org.
About Co-Ops for Change
Co-Ops for Change is a grassroots movement to increase awareness both within the credit union community and among elected policymakers that our regulatory leadership should understand and support the seven cooperative principles. The regulatory process should consider credit unions’ cooperative character, as well as the shared economic value they create for people and communities. Credit union members, volunteers, professionals and industry supporters can learn more about the campaign at www.Coops4Change.org.