97-25359. Central Liquidity Facility

[Federal Register Volume 62, Number 186 (Thursday, September 25, 1997)]
[Proposed Rules]
[Pages 50262-50263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25359]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 725


Central Liquidity Facility

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The National Credit Union Central Liquidity Facility(the CLF), 
a mixed-ownership government corporation within theNCUA, serves as a 
liquidity source for its member credit unions. The current regulation 
requires the CLF to secure each loan with a security interest in all of 
the assets of the member credit union. This requirement interferes with 
the ability of credit unions to establish credit arrangements with 
other parties and in some cases may preclude members from borrowing 
from the CLF. In order to accommodate credit arrangements between the 
CLF member credit unions and multiple parties, NCUA is proposing to 
amend this requirement to permit the CLF to take, in lieu of a blanket 
security interest, a first priority security interest in specific 
assets of the credit union with a net book value at least equal to 110% 
of the amounts owed on the CLF advance or Agent loan. The proposed rule 
is intended to provide credit unions with greater flexibility in their 
normal operations while ensuring that the CLF is adequately protected 
for any loans that it makes.

DATES: Comments must be received on or before November 24, 1997.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the 
Board. Mail or hand-deliver comments to: National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax 
comments to [phone]. E-mail comments to [e-mail]. 
Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Herbert S. Yolles, President, National 
Credit Union Central Liquidity Facility, at the above address. 
Telephone Number [phone] or [phone].

SUPPLEMENTARY INFORMATION:

Background

    Pub. L. 96-630, Title XVIII, 12 U.S.C. 1795, et seq., enacted in 
1979, created the CLF. Its purpose is to improve general financial 
stability by meeting the liquidity needs of credit unions and thereby 
encourage savings, support consumer and mortgage lending, and provide 
basic financial resources to all segments of the economy.
    Most credit unions are members of a corporate credit union. In 
addition, credit unions are now eligible for Federal Home Loan Bank 
membership. Both corporate credit unions and Federal Home Loan Banks 
require that a credit union provide collateral for borrowing. In 
addition, credit unions may also borrow from other financial 
institutions and are required to provide collateral for such 
borrowings. While multiple security agreements are not prohibited under 
the current regulation, the presence of competing security interests 
could result in the CLF being under-collateralized for any advances.

Collateral--Net Book Value

    Currently, Section 725.19 requires that the CLF secure each loan 
with a blanket security interest in all of the assets of the member 
credit union. The proposed rule gives the CLF the option of taking 
either a blanket security interest or a first priority security 
interest in specific collateral of the credit union with a net book 
value at least equal to 110% of the amounts owed on the CLF advance or 
Agent loan. This requirement would permit a credit union to provide 
collateral to other lenders and still have the ability to borrow from 
the CLF, so long as it had other assets with sufficient net book value 
to support the CLF advance or Agent loan. It also would permit the CLF 
to accept a security interest in all assets of the credit union as 
collateral for a CLF advance to a Regular member. However, the net book 
value of the assets would still have to be at least equal to 110% of 
the amounts amounts owed on the CLF advance or Agent loan.

Superior Perfected Interest

    In calculating the value of the assets covered by the security 
interest, assets in which any third party had a superior perfected 
interest would be excluded.

Section 208 Assistance

    The proposed rule also expressly authorizes the CLF to accept the 
guarantee of the National Credit Union Share Insurance Fund as 
collateral for borrowings by a credit union. This provision would 
facilitate advances by the CLF to credit unions receiving assistance 
under Section 208 of the Federal Credit Union Act.

Regulatory Procedures

Regulatory Flexibility Act

    The NCUA Board certifies that this proposed rule, if adopted, will 
not have a significant impact on a substantial number of small credit 
unions (those under $1 million in assets). The proposed rule will make 
it easier for credit unions to obtain loans from both CLF and other 
sources. Accordingly, a regulatory flexibility analysis is not 
required.

Paperwork Reduction Act

    The proposed rule has no information collection requirements; 
therefore, no Paperwork Reduction Act analysis is required.

Executive Order 12612

    The NCUA Board has determined that the proposed rule, if adopted, 
will not have a substantial direct effect on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among various levels of 
government.

List of Subjects in 12 CFR Part 725

    Credit, Credit unions, Reporting and recordkeeping requirements.


[[Page 50263]]


    By the National Credit Union Administration Board on September 
17, 1997.
Becky Baker,
Secretary of the Board.

    For the reasons set forth in the preamble, NCUA proposes to amend 
12 CFR part 725 as set forth below:

PART 725--NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY 
FACILITY

    1. The authority citation for part 725 continues to read as 
follows:

    Authority: Secs. 301-307 Federal Credit Union Act, 92 Stat. 
3719-3722 (12 U.S.C. 1795-1795f).

    2. Section 725.19 is revised to read as follows:


Sec. 725.19  Collateral requirements.

    (a) Each CLF advance and each Agent loan shall be secured by a 
first priority security interest in collateral of the credit union with 
a net book value at least equal to 110% of all amounts due under the 
applicable CLF advance or Agent loan, or by guarantee of the National 
Credit Union Share Insurance Fund.
    (b) The CLF may accept as collateral for each CLF advance to a 
Regular member, a security interest in all assets of the Regular 
member; provided however, that the value of any assets in which any 
third party has a perfected security interest that is superior to the 
security interest of the CLF shall be excluded for purposes of 
complying with the requirements of paragraph (a) of this section.
    (c) The CLF may accept as collateral for each CLF advance to an 
Agent member, a security interest in the Agent loans for which the CLF 
advance was made; provided however, that the collateral for such Agent 
loan meets the requirements of paragraph (a) of this section.

[FR Doc. 97-25359 Filed 9-24-97; 8:45 am]
BILLING CODE 7535-01-U