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If NCUA is set on regulating how credit unions meet their emergency liquidity needs, it will need to expand its brief list of potential sources offered in its advance notice of proposed rulemaking, NAFCU Executive Vice President of Government Affairs Dan Berger said Tuesday.

Berger, in an official comment letter, recounted NAFCU's longstanding focus on credit unions' liquidity needs and its success in ensuring the Central Liquidity Facility's borrowing authority for meeting those needs is not constrained by Congress. But while agreeing that it's essential that a federally insured credit union maintain backup sources of liquidity, Berger said regulation isn't the right approach to ensuring that.

NCUA's ANPR contemplates a regulation that would require federally insured credit unions to ensure they have access to backup sources of liquidity in one of four ways:

• become a member in good standing of CLF directly;
• become a member in good standing of CLF through a corporate credit union;
• obtain and maintain demonstrated access to the Federal Reserve's discount window; or
• maintain a certain percentage of assets in highly liquid Treasury securities.

Berger said the above list is unnecessarily restricted. He urged that NCUA include in any proposed emergency liquidity rule the option to maintain membership in one of the Federal Home Loan Banks and to maintain a percentage of highly liquid assets, not just Treasuries.

NCUA says it didn't include FHLB membership, in part, because some 27 percent of insured credit unions don't hold mortgages. Berger said the fact that the rest do makes FHLB membership a viable choice for a large number of credit unions. "[A] more detailed examination of FICUs with $10 million or more in assets shows that a significant proportion are members of a FHLB already," he noted. "The percentage increases as the size of the portfolio is taken into account and can only be expected to increase as credit unions grow in asset size."

Berger also urged that NCUA identify assets other than Treasury holdings as adequately liquid in emergency situations; that NCUA ease the standards for direct membership in the CLF, including the level of capital contributions required; and that the agency provide incentives for corporate credit unions to serve as CLF member agents.

Regarding eased standards for credit unions' direct membership in the CLF, he said NAFCU stands ready to assist NCUA in seeking Federal Credit Union Act revisions to facilitate those.