Social distancing, event cancellations, school closures, and stay at home orders—all of which are critical to controlling the coronavirus (COVID-19) health crisis—have dramatically reduced routine economic activity.

They’ve also stressed members financially, physically, and mentally—and significantly increased the complexity of operating a credit union and serving our most vulnerable members.

The gradual and uneven easing of widely mandated social restrictions has made leaders’ roles more, not less, challenging, and little things have taken on greater importance.

Here are three factors that matter greatly as you navigate these uncharted waters.

Access to liquidity

The No. 1 killer of financial institutions during a crisis is insufficient liquidity.

Credit unions now have ample liquidity, and recent massive deposit inflows from Economic Impact Payment deposits added billions of dollars to deposit accounts. The credit union loan-to-share ratio is rapidly approaching 75%.

The best time to gain access to liquidity sources is when they’re not needed. Against this backdrop, CUNA, corporate credit unions, leagues, and credit unions have successfully lobbied Congress to improve access to the NCUA Central Liquidity Facility (CLF) in the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The CLF played a key emergency liquidity role during the Great Recession, when it helped corporate credit unions. It now has the potential to play a pivotal role in the COVID-19 economic crisis by helping to resolve any natural person credit union emergency liquidity or system needs.

Congress established the CLF in 1978. It was designed as a source for emergency funding (essentially a backstop) only to be accessed when all other market sources of liquidity were exhausted and it included a prohibition of using CLF funds to “expand credit union portfolios” (which was interpreted to mean loan portfolios).

The CLF has the capacity to borrow directly from the U.S. Treasury and inject liquidity into natural person credit unions (and now, their corporate credit unions as their agents).

As the pandemic and resulting economic crisis passes, loan demand will increase, perhaps substantially. If so, liquidity will, once again, decline. And the need for liquidity sources will become more obvious.

The CARES Act increases the value and usefulness of the CLF to our entire credit union system in several ways, albeit temporarily.

First, it increases the facility’s maximum legal borrowing authority. Next, it makes it easier, with NCUA Board approval, for corporate credit unions to act as agent members of subsets of their own member credit unions. This can help natural person credit unions access emergency liquidity indirectly from the CLF via their corporate.

Last, it also provides more clarity and flexibility about the purposes for which the NCUA Board can approve loans by (temporarily) removing the phrase, “the board shall not approve an application for credit the intent of which is to expand credit union portfolios.”

NCUA is encouraging large credit unions to join the CLF directly as soon as possible because its total borrowing power is limited to a multiple of its stock subscription. There are some good reasons to consider doing so even if your credit union has access to other emergency liquidity sources such as the Fed Discount Window.

The risk of subscribing to CLF stock is minimal. The new law allows the CLF to borrow from 16 to 32 times the CLF’s paid-in capital (and any surplus), and your credit union’s stock subscription, carried as an investment on your books, is essentially risk-free.

NCUA’s revised rule includes this statement made in bold font for added emphasis: “The board urges all natural person and corporate credit unions that do not already belong to the facility to join.”

Immediately following the passage of the CARES Act with the new but temporary powers of the CLF, the NCUA Board took further steps to lessen prior application and approval barriers for natural person credit unions.

For example, NCUA adopted new regulations that eliminated the six-month waiting period for a new member to receive a loan, removed the explicit waiting period for a credit union to terminate its membership, and eased collateral requirements for certain assets securing loans.

The agency is clearly sending a message that they want as many credit unions as possible, especially larger ones, to join the CLF to not only secure an additional safe and reliable emergency liquidity source but to expand the leveraged CLF’s borrowing capacity to ensure the system has ample liquidity available to survive the pandemic-caused economic crisis.

If large credit unions join the CLF in significant numbers, it would help to ensure both small and large credit unions have access to a larger pool of reliable emergency liquidity. That should translate into fewer failures during times of severe stress—like these.

Several significant advantages would occur in this scenario. Fewer small credit union failures will mean less exposure to reputation risk for all credit unions. And it also could mean a lower likelihood of future share insurance assessments. Put simply, a larger CLF is essentially a bigger and more effective shock absorber for the system, which benefits all credit unions, both small and large.

Joining the CLF at this time is the right thing to do to protect our system from shocks by managing overall liquidity. Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures. Together, credit unions can reach more people and improve more lives.

In the meantime, CUNA will continue to urge Congress to make further improvements to the CLF by extending the new provisions to temporarily expand the amount of borrowing authority even further.

NEXT: Business lending