The Next Shoe Falls: Credit Union's CLF Becomes the Latest Humpty Dumpty

We received this query from Bryan Milligan, CFO at Chicago Patrolmen’s Federal Credit Union:

On July 31 NAFCU sent an email announcing the NCUA was making changes to the CLF. The article stated, “Pursuant to the investment policy change, the CLF will transfer its funds from U.S. Central to the U.S. Treasury. The funds will be invested in U.S. Treasury securities. NCUA further announced that it is exploring alternatives regarding the transfer of primary ownership of CLF stock from U.S. Central to credit unions.

The agency maintains that the actions are necessary to preserve the CLF’s full borrowing authority and to enable the CLF to continue to fulfill its role as a contingent liquidity provider to the credit union system.”

I would like your opinion as to what this “transfer of ownership” would mean to credit unions. Based on the NCUA’s actions thus far, I am concerned as to the intentions of this move.

In looking at this complex issue, an age old nursery rhyme comes to mind:

Humpty Dumpty sat on a wall. Humpty Dumpty had a great fall.

And all the king’s horses and all the king’s men couldn’t put Humpty together again.

Every credit union is a member of the CLF. This collective funding provides the maximum capital base for CLF borrowing. However the overwhelming majority have no contact or even knowledge about what this means. NCUA’s most recent actions would appear to have no immediate financial implications for them.

Yet, this decision to re-open the way CLF membership is conferred could accelerate the dissolution of the unitary credit union system. The outcome would then be the exact opposite of what NCUA said its intentions were, that is to bring greater stability to the industry.

The Agency, at the highest levels, has either misunderstood or not assessed the impact of its actions on the industry. Never, in all of the explanations, has the justification that this decision is being made to help credit unions better serve their members ever been used.

Each of the sudden announcements of losses, takeovers and regulatory action by the Agency has led to more confusion and future uncertainty. Problems, as well as solutions for a stronger system, have only been pushed into the future No audit reports of the Agency’s actions are available. The primary solution appears to just keep spending more money.

Please download the attached article for a complete analysis of the situation, including context, a 2009 timeline of missteps, what could have been done differently, and what the new leadership at NCUA faces.