Title 12—Banks and Banking--Volume 1
PART 725—NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY FACILITY
§ 725.1   Scope.
This part contains the regulations implementing the National Credit Union Central Liquidity Facility Act, subchapter III of the Federal Credit Union Act. The National Credit Union Administration Central Liquidity Facility is a mixed-ownership Government corporation within the National Credit Union Administration. It is managed by the National Credit Union Administration Board and is owned by its member credit unions. The purpose of the Facility is to improve the general financial stability of credit unions by meeting their liquidity needs and thereby encourage savings, support consumer and mortgage lending and provide basic financial resources to all segments of the economy.
§ 725.2   Definitions.
As used in this part:
(a) Agent means an Agent member of the Facility.
(b) Agent group means an Agent member of the Facility consisting of a group of corporate credit unions, one of which is designated as the group's Agent group representative and authorized to transact business with the Facility on behalf of the group or any member of the group.
(c) Agent loan means an advance of funds by an Agent to a member natural person credit union to meet liquidity needs which have been the basis for a Facility advance.
(d) Corporate credit union means a Federal or state-chartered credit union primarily serving other credit unions. A credit union is primarily serving other credit unions when the total dollar amount of the shares and deposits received from other credit unions plus loans to other credit unions exceeds 50 percent of the total dollar amount of all shares and deposits plus loans during the qualifying period, as defined in paragraph (o) of this section.
(e) Facility or Central Liquidity Facility means the National Credit Union Administration Central Liquidity Facility.
(f) Facility advance means an advance of funds by the Facility to a Regular or Agent member.
(g) Facility lending officer means any employee of the Facility or the National Credit Union Administration who has been designated by the NCUA Board as a Facility lending officer.
(h) Liquid assets means the following unpledged assets:
(1) Cash on hand;
(2) Share or deposit accounts with remaining maturities of one year or less maintained in corporate credit unions or institutions insured by the Federal Deposit Insurance Corporation;
(3) Investments in obligations of the United States or any agency thereof, or securities fully guaranteed as to principal and interest thereby, which are authorized under 12 U.S.C. 1757(7) and which have a remaining maturity of one year or less;
(4) Common trust investments and similar investments in funds or securities authorized for Federal credit unions, the objectives of which are to provide daily liquidity for participating credit unions;
(5) Shares in the National Credit Union Administration Central Liquidity Facility or in special share accounts authorized by § 725.7 of this part;
(6) In the case of a federally insured state-chartered credit union, any asset held in satisfaction of liquidity requirements imposed by applicable state law or regulation; and
(7) Balances maintained by federally insured credit unions in a Federal Reserve bank, or in a pass-through account to a Federal Reserve bank, pursuant to the requirements of section 19(b) of the Federal Reserve Act (12 U.S.C. 461(b)).
(i) Liquidity needs means:
(1) From April 29, 2020 to December 31, 2021, the needs of credit unions for:
(i) Short-term adjustment credit available to assist in meeting temporary requirements for funds or to cushion more persistent outflows of funds pending an orderly adjustment of credit union assets and liabilities;
(ii) Seasonal credit available for longer periods to assist in meeting seasonal needs for funds arising from a combination of expected patterns of movement in share and deposit accounts and loans; and
(iii) Protracted adjustment credit available in the event of unusual or emergency circumstances of a longer-term nature resulting from national, regional or local difficulties.
(2) After December 31, 2021, the needs of credit unions primarily serving natural persons for:
(i) Short-term adjustment credit available to assist in meeting temporary requirements for funds or to cushion more persistent outflows of funds pending an orderly adjustment of credit union assets and liabilities;
(ii) Seasonal credit available for longer periods to assist in meeting seasonal needs for funds arising from a combination of expected patterns of movement in share and deposit accounts and loans; and
(iii) Protracted adjustment credit available in the event of unusual or emergency circumstances of a longer-term nature resulting from national, regional or local difficulties.
(j) Management policies means policies of a credit union with respect to membership, shares, deposits, dividends, interest rates, lending, investing, borrowing, safeguarding of assets, hiring, training and supervision of employees, and general operating and control practices and procedures.
(k) Member means a Regular or Agent member of the Facility, unless the context indicates otherwise.
(l) Member natural person credit union means a natural person credit union which is a member of an Agent or of any corporate credit union in an Agent group. Member natural person credit unions are not members of the Facility unless they are also Regular members of the Facility.
(m) Natural person credit union means a Federal or state-chartered credit union primarily serving natural persons. A credit union is primarily serving natural persons if it is not a corporate credit union as defined in paragraph (d) of this section.
(n) Paid-in and unimpaired capital and surplus means shares and deposits plus post-closing, undivided earnings. This does not include regular reserves or special reserves required by law, regulation or special agreement between the credit union and its regulator or share insurer.
(o) Qualifying Period means:
(1) For initial qualification, any 7 months out of the 12 months immediately preceding the month in which application is made to become a member of the Facility; and
(2) For qualification during each subsequent calendar year, any 7 months out of the previous calendar year.
(p) Stock subscription means the stock subscription required for membership in the Facility. “Total subscribed Facility stock” is the sum of all members' stock subscriptions.
§ 725.3   Regular membership.
(a) A natural person credit union may become a Regular member of the Facility by:
(1) Making application on a form approved by the Facility;
(2) Subscribing to capital stock of the Facility in an amount equal to one-half of 1 percent of the credit union's paid-in and unimpaired capital and surplus, as determined in accordance with § 725.5(b) of this part, and forwarding with its completed application funds equal to one-half of this stock subscription; and
(3) Furnishing the following reports and documents with the completed membership application:
(i) A copy of the credit union's financial and statistical report for the most recent calendar month; and
(ii) Copies of the credit union's charter and bylaws, unless the credit union is federally chartered.
(b) [Reserved]
§ 725.4   Agent membership.
(a) A corporate credit union or a group of corporate credit unions may become an Agent member of the Facility by (in the case of a group of corporate credit unions, each corporate credit union in the group must do each of the following except for paragraph (a)(2) of this section, which shall be done by the Agent group representative):
(1) Making application on a form approved by the Facility;
(2) Subscribing to the capital stock of the Facility in an amount equal to:
(i) One-half of 1 percent of the paid-in and unimpaired capital and surplus (as determined in accordance with § 725.5(b) of this part) of all the corporate credit union's or corporate credit union group's member natural person credit unions, except those which are Regular members of the Facility or which have access to the Facility through, and are included in the stock subscription of, another Agent (a natural person credit union which is a member of more than one Agent member of the Facility must designate through which Agent it will deal with the Facility, and the designated Agent will be responsible for including the capital and surplus of such credit union in the calculation of its stock subscription). Upon approval of the application, the Agent shall forward funds equal to one-half of this initial stock subscription to the Facility;
(ii) From April 29, 2020, until December 31, 2021, one-half of 1 percent of the paid-in and unimpaired capital and surplus (as determined in accordance with § 725.5(b) of this part) of such credit union members of the corporate credit union or corporate credit union group as the Board may determine in its sole discretion, except those which are Regular members of the Facility or which have access to the Facility through, and are included in the stock subscription of, another Agent (a natural person credit union which is a member of more than one Agent member of the Facility must designate through which Agent it will deal with the Facility, and the designated Agent will be responsible for including the capital and surplus of such credit union in the calculation of its stock subscription). Upon approval of the application, the Agent shall forward funds equal to one-half of this initial stock subscription to the Facility. A corporate credit union or corporate credit union group that became an Agent member of the Facility under this paragraph shall, after December 31, 2021, but before January 1, 2023, either:
(A) Purchase Facility stock in accordance with the terms of paragraph (a)(2)(i) of this section; or
(B) Terminate its membership in the facility.
(iii) From April 29, 2020, until December 31, 2021, if borrowing for its own liquidity needs, one-half of 1 percent of the Agent's own paid-in and unimpaired capital and surplus. Upon approval of the application, the Agent shall forward funds equal to one-half of this stock subscription to the Facility. This amount shall be in addition to the amounts required by paragraph (a)(2)(i) or (ii) of this section, if a corporate credit union or corporate credit union group joined the facility as an Agent and intends to borrow for its own liquidity needs. Any corporate credit union or corporate credit union group that received a Facility advance for its own liquidity need under the temporary requirements set forth in this paragraph must, as of January 1, 2022 and thereafter:
(A) Not request any additional Facility advances for its own liquidity needs; and
(B) Continue to follow the terms of the Facility advance agreement entered into between the Agent and the Facility.
(3) Furnishing the following reports and documents with the completed membership application:
(i) A copy of the corporate credit union's financial and statistical report for the most recent calendar month;
(ii) Copies of the corporate credit union's charter and bylaws, unless such credit union is federally chartered; and
(iii) A list of all the corporate credit union's member natural person credit unions.
(4) Agreeing to submit to the supervision of the NCUA Board and to comply with all regulations and reporting requirements which the NCUA Board shall prescribe for Agent members;
(5) Agreeing to submit to periodic unrestricted examinations by the NCUA Board or its designee; and
(6) Obtaining the written approval of the NCUA Board.
(b) The NCUA Board may approve a corporate credit union or group of corporate credit unions as an Agent member of the Facility, provided the NCUA Board is satisfied that such credit union or credit union group meets certain criteria, including but not limited to the following (in the case of a group of corporate credit unions, each corporate credit union in the group must meet these criteria):
(1) The management policies are in writing, approved by the corporate credit union's board of directors, and reviewed annually by such board;
(2) Adequate internal controls are in place to assure accurate and timely reporting of transactions and the safeguarding of assets;
(3) The financial condition of the corporate credit union is sound with adequate reserves for losses;
(4) Surety bond coverage provides protection for the corporate credit union while the corporate credit union is performing the duties of an Agent member of the Facility;
(5) Management has demonstrated its ability to use such techniques as cash flow analysis, budgeting, and projections of sources and uses of funds to manage the affairs of the corporate credit union efficiently and in conformity with sound business practices; and
(6) There are no practices, procedures, policies, or other factors that would result in discrimination by the corporate credit union among natural person credit unions or inhibit its ability to act independently in its role as an Agent member of the Facility.
(c) Each Agent, or in the case of an Agent group, each corporate credit union in the group, must:
(1) Maintain records related to Facility activity in conformity with requirements prescribed by the NCUA Board from time to time; and
(2) Submit such reports as may be required by the Facility to determine financial soundness, quality and level of service, and conformity with established guidelines and procedures.
(d) Each Agent, or in the case of an Agent group, each corporate credit union in the group, must have on an annual basis a third party independent audit of its books and records and provide the Facility with copies of the report of such audit. The auditor selected must be recognized by a State or territorial licensing authority as possessing the requisite knowledge and experience to perform audits.
(e) Within 30 days after a natural person credit union becomes a member of a corporate credit union which is an Agent or a member of an Agent group, the Agent, or in the case of an Agent group, the Agent group representative, shall subscribe to additional capital stock of the Facility in an amount equal to one-half of 1 percent of such credit union's paid-in and unimpaired capital and surplus, and shall forward funds equal to one-half of this stock subscription to the Facility. This subsection shall not apply if the natural person credit union is a Regular member of the Facility or has access to the Facility through, and is included in the stock subscription of, another Agent.
(f) A corporate credit union or group of corporate credit unions which becomes an Agent member of the Facility after February 23, 1980, may not receive a Facility advance without approval of the NCUA Board for a period of six months after becoming a member. This subsection shall not apply to any credit union which becomes an Agent member or a member of an Agent group within six months after such credit union is chartered or within six months after such credit union has been an Agent or a member of another Agent group.
(g) Agent members will be compensated for the services they perform for the Facility in a manner to be specified by the NCUA Board.
§ 725.5   Capital stock.
(a) The capital stock of the Facility is divided into nonvoting shares having a par value of $50 each. The Facility issues whole and fractional shares. Shares are issued in book entry form upon receipt of payment for such shares, and cannot be transferred or hypothecated except to the Facility.
(b) The capital stock subscriptions provided for in §§ 725.3 and 725.4 shall be:
(1) Based on an arithmetic average of paid-in and unimpaired capital and surplus over the six months preceding application for membership, and
(2) Adjusted at the close of each calendar year in accordance with an arithmetic average of paid-in and unimpaired capital and surplus over the twelve months in such calendar year. Payments for adjustments to the capital stock subscription must be received by the Facility no later than March 31 of the following year.
(c) That part of a member's stock subscription which is not paid-in shall be held by the member on call of the NCUA Board and shall be invested in liquid assets.
(d) Any member may at any time purchase additional shares of capital stock in the Facility. Any shares in excess of the member's required paid-in portion of its stock subscription can be redeemed by the member as long as the member maintains investments in other assets sufficient to meet the requirement of paragraph (c) of this section. The member's required paid-in portion of its stock subscription includes one-half of its stock subscription plus any “calls” that may have been issued by the NCUA Board against the “on-call” portion of such stock subscription.
(e) Dividends will be paid on capital stock at such times and rates as are determined by the NCUA Board. The NCUA Board shall declare such dividends no less frequently than annually. All issued (paid for) capital stock shall share in dividend distributions without preference. Payment of dividends will be made by the issuance of capital stock to the member in the amount of the dividend.
§ 725.6   Termination of membership.
(a) A member of the Facility whose stock subscription constitutes less than 5 percent of total subscribed Facility stock may withdraw from membership in the Facility six months after notifying the NCUA Board in writing of its intention to do so.
(b) A member of the Facility whose stock subscription constitutes 5 percent or more of total subscribed Facility stock may withdraw from membership in the Facility twenty-four months after notifying the NCUA Board in writing of its intention to do so.
(c) The NCUA Board may terminate membership in the Facility if, after the opportunity for a hearing, the NCUA Board determines the member has failed to comply with any provision of the National Credit Union Central Liquidity Facility Act or any regulation issued pursuant thereto. If membership is terminated under this subsection, the credit union will be required to obtain the approval of the NCUA Board before becoming a member of the Facility again. Such approval will be granted only if the NCUA Board is satisfied that the credit union will comply with such Act and regulations.
(d)(1) If membership is terminated under any provision of this section, the terminated member's stock shall be redeemed upon termination. In such event, the Facility may retain any amount owed to the Facility by the member.
(2) When a member natural person credit union withdraws from membership in a corporate credit union which is an Agent or a member of an Agent group, the stock subscription of the Agent, or in the case of an Agent group, the stock subscription of the Agent group representative, will be adjusted after the waiting period which would apply under paragraph (a) or (b) of this section if the withdrawing credit union were a member of the Facility.
§ 725.7   Special share accounts in federally chartered agent members.
(a) A federally chartered Agent member of the Facility may require its member natural person credit unions to establish and maintain special share accounts in the Agent member to reimburse it for the portion of the Agent's Facility stock subscription which is attributable to the paid-in and unimpaired capital and surplus of each such natural person credit union.
(b) The amount which the Agent member requires each member natural person credit union to maintain in such special share accounts shall be based on a uniform percentage of the paid-in and unimpaired capital and surplus of such credit unions, and shall not exceed the amount of the Agent's stock subscription which is attributable to the capital and surplus of each such credit union. An Agent shall not permit a member to maintain in a special share account any amounts in excess of the required amount.
(c) A natural person credit union that withdraws from membership in an Agent member or that becomes a Regular member of the Facility, shall be entitled to the return of all amounts in its special share account upon withdrawal from membership in the Agent or upon becoming a Regular member, as applicable.
§§ 725.8-725.16   [Reserved]
§ 725.17   Applications for extensions of credit.
(a) A Regular member may apply for a Facility advance to meet its liquidity needs by filing an application on a Facility-approved form, or by any other method approved by the Facility.
(b)(1) An Agent member may apply for a Facility advance by filing an application on a Facility-approved form, or by any other method approved by the Facility. 4
4 If the Agent is an Agent group, the application must be filed by the Agent group representative, and any Facility advance will be made to the Agent group representative.
(2) The Agent's application shall be based on the following:
(i) Approved applications to the Agent by its member natural person credit unions for pending loans to meet liquidity needs; or
(ii) Outstanding loans previously made by the Agent to meet liquidity needs of its member natural person credit unions; or
(iii) Such other demonstrable liquidity needs as the NCUA Board may specify; or
(iv) For the period beginning April 29, 2020, and ending on December 31, 2021, the applicant Agent's own liquidity needs. After the aforementioned period, an Agent is prohibited from submitting an application for an extension for its own liquidity needs.
(3) An Agent shall not submit an application to the Facility based on the liquidity needs of any member natural person credit union which has not agreed to the repayment, security and credit reporting terms prescribed by the Facility for Agent loans;
(4) Any loan to meet liquidity needs which have been or will be the basis for an application by the Agent for a Facility advance must be applied for on an application form approved by the Facility.
(5) Unless approved by the Facility, an Agent shall not submit an application to the Facility based on the liquidity needs of any credit union which became a member natural person credit union of the Agent after February 2, 1980, unless such credit union has been a member natural person credit union of the Agent for six months, was chartered within six months before becoming a member natural person credit union of the Agent, or had access to the Facility either as a Regular member or through another Agent within six months before becoming a member natural person credit union of the Agent.
(c) In emergency circumstances, the applications for extensions of credit required under paragraph (a) and paragraphs (b)(1) and (b)(4) of this section may be verbal, but must be confirmed within five working days by an application as required by such subsection or paragraphs.
(d) Applications of Regular and Agent members shall be filed with a Facility lending officer. Each application for credit which is completed and properly filed will be approved or denied within five working days after the day of receipt.
§ 725.18   Creditworthiness.
(a) Prior to Facility approval of each application of a Regular member for a Facility advance or an Agent member for a Facility advance for such Agent member's own need (provided such Agent may submit an application under § 725.17(b)(2)(iv) of this part), the Facility shall consider the creditworthiness of such member.
(b) Prior to an Agent's approval of each application of a member natural person credit union for an extension of credit on which an application by the Agent to the Facility will be based, an Agent shall consider the creditworthiness of such member natural person credit union.
(c) Specific characteristics of an uncreditworthy credit union include, but are not limited to, insolvency as defined in paragraph (1) to the definition of “insolvency” in § 700.2 of this chapter, unsatisfactory practices in extending credit, lower than desirable reserve levels, high expense ratio, failure to repay previous Facility advances as agreed, excessive dependence on borrowed funds, inadequate cash management policies and planning, or any other relevant characteristics creating a less than satisfactory condition. The presence of one or more of these characteristics will not necessarily mean that a credit union will be considered uncreditworthy.
(d) A credit union (whether a Regular member of the Facility, Agent member (provided such Agent may submit an application under § 725.17(b)(2)(iv) of this part), or a member natural person credit union) which does not meet the Facility's creditworthiness standards may be limited in or denied the use of advances for its liquidity needs.
§ 725.19   Collateral requirements.
(a) Each Facility 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 an amount as required by the Facility's collateral table, published at www.NCUA.gov, or by guarantee of the National Credit Union Share Insurance Fund.
(b) The Facility may accept as collateral for each Facility advance to a Regular member or to an Agent member, for such Agent member's own needs, a security interest in all assets of the 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 Facility shall be excluded for purposes of complying with the requirements of paragraph (a) of this section.
(c) The Facility may accept as collateral for each Facility advance to an Agent member, a security interest in the Agent loans for which the Facility advance was made; provided however, that the collateral for such Agent loan meets the requirements of paragraph (a) of this section.
§ 725.20   Repayment, security and credit reporting agreements; other terms and conditions.
(a) Regular and Agent members, or in the case of an Agent group, the Agent group representative, shall sign the repayment, security and credit reporting agreements prescribed by the Facility, and all Facility advances to Regular and Agent members shall be governed by the terms and conditions of such agreements.
(b) All Agent loans shall be made subject to the repayment, security and credit reporting terms prescribed by the Facility for Agent loans.
(c) Other terms and conditions applicable to Facility advances and Agent loans will be specified in confirmations of credit provided in connection with such advances and loans, and/or in operating circulars of the Facility.
§ 725.21   Modification of agreements.
The repayment, security, and credit reporting terms under which Facility advances and Agent loans will be made, as provided in § 725.20 of this part, shall be subject to modification from time to time as the NCUA Board may determine. Any change in such terms shall be published in the Federal Register and shall apply to all advances disbursed by the Facility after the effective date of the change.
§ 725.22   Advances to insurance organizations.
(a) In accordance with policies established by the NCUA Board, the Facility may advance funds to a State credit union share or deposit insurance corporation, guaranty credit union, guaranty association, or similar organization. Requests for such advances shall be supported by an application which sets forth and supports the need for the advance.
(b) Advances under paragraph (a) shall be subject to the approval of the NCUA Board and shall be made subject to the following terms:
(1) The advance shall be fully secured,
(2) The maturity of the advance shall not exceed 12 months,
(3) The advance shall not be renewable at maturity, and
(4) The funds advanced shall not be relent at an interest rate exceeding that imposed by the Facility.
§ 725.23   Other advances.
(a) The NCUA Board may authorize extensions of credit to members of the Facility for purposes other than liquidity needs if the NCUA Board, the Board of Governors of the Federal Reserve System, and the Secretary of the Treasury concur in a determination that such extensions of credit are in the national economic interest.
(b) Extensions of credit approved under the conditions of paragraph (a) of this section shall be subject to such terms and conditions as shall be established by the NCUA Board.