Credit Union Regulatory Alert  

Published by Howard & Howard Attorneys PLLC



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NCUA Finalizes Liquidity and Contingency Funding Requirements 

On October 24, 2013, the National Credit Union Administration (NCUA) finalized a new rule - 12 C.F.R. 741.12 - requiring all federally-insured credit unions (FICUs) to formalize their liquidity and contingency funding plans. In addition to the final rule, NCUA issued Letter to Credit Unions 13-CU-10 which provides further information on NCUA's expectations. The new requirements are effective on March 31, 2014.


Importantly, the new requirements depend on the federally-insured credit union's asset size. Each asset category has its own regulatory requirements set out by NCUA and as credit unions move up the asset categories, the requirements expand.


FICUs with Assets Less than $50 Million

The regulation requires federally-insured credit unions with assets of less than $50 million to "maintain a basic written policy that provides a credit union board-approved framework for managing liquidity and a list of contingent liquidity sources that can be employed under adverse circumstances."


FICUs with Assets More than $50 Million but Less than $250 Million

NCUA's final rule created a middle tier and requires all federally-insured credit unions falling within these asset thresholds to maintain a contingency funding plan that clearly sets out strategies for addressing shortfalls in emergencies. The contingency funding plan must expand upon the written liquidity policy and be commensurate with the credit union's complexity, risk profile and scope of operations. Section 741.12(d) of the regulation outlines the minimum components of a credit union's contingency funding plan.


FICUs with Assets of $250 Million or More

In addition to establishing a formal contingency funding plan in accordance with 12 C.F.R. 741.12(d), FICUs with assets of $250 million or more must establish and document access to at least one contingent federal liquidity source for use in times of financial emergency and distressed economic circumstances.


NCUA's final rule provided three avenues that credit unions can use to demonstrate access to a "contingent federal liquidity source":

  1. Maintaining regular membership in the Central Liquidity Facility;
  2. Maintaining membership in the Central Liquidity Facility through an Agent; or
  3. Establishing borrowing access at the Federal Reserve Discount Window by filing the necessary lending agreements and corporate resolutions to obtain credit from a Federal Reserve Bank.

By March 31, 2014, federally-insured credit unions in this largest asset tier must have submitted either a completed application for access to the Central Liquidity Facility or have filed the necessary lending agreements and corporate resolutions to obtain credit from the Discount Window. Further, these credit unions must take the additional step of "conducting advance planning and a test of contingent funding sources" by December 31, 2014.


If you have any questions or need assistance, please feel free to contact Steve Van Beek or Michael Bell

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NCUA Finalizes Liquidity and Contingency Funding Requirements
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This Advisory is intended for informational purposes only, and is not offered as legal advice.  Please call a qualified attorney for counsel related to your particular situation.