clf finance Basics and Beyond

CLF finance is a type of alternative investment strategy that involves lending money to companies or individuals in exchange for interest.

It's a high-risk, high-reward approach that requires a significant amount of capital and a solid understanding of the underlying assets.

CLF finance can be used to finance a wide range of projects, from small businesses to real estate developments.

The key to success in CLF finance is diversifying your portfolio and doing thorough due diligence on potential investments.

A well-diversified CLF finance portfolio can provide regular income and potentially significant long-term returns.

However, it's essential to understand that CLF finance is not suitable for all investors, and it's crucial to assess your risk tolerance and investment goals before diving in.

CLF finance offers various types of funding, including venture capital, growth equity, and mezzanine financing.

Mezzanine financing provides a mix of debt and equity, allowing companies to tap into both funding sources. This hybrid approach can be beneficial for businesses seeking to expand their operations without sacrificing ownership control.

A CLF, or Committed Liquidity Facility, is a crucial tool for banks to manage their liquidity during times of stress. It's defined in the international standard for liquidity regulation, the liquidity coverage ratio.

To meet the international standard, a CLF must have at least three defining characteristics. Here are the specifics:

These characteristics are essential to ensure that a CLF can provide the necessary liquidity support to banks during times of stress.

The Federal Reserve can provide a CLF to a commercial bank or other depository institution under Section 10B of the Federal Reserve Act. This allows the Fed to lend for terms of up to four months against any collateral and at any rate.

The Fed can lend to a commercial bank at its discretion, but it can indicate its intention to lend under specific circumstances. The Fed's lending authority is quite broad.

Commercial banks can easily qualify for a CLF, but bank holding companies face more restrictions. The Fed can only provide a CLF to a bank holding company in two specific circumstances.

These circumstances include when the facility is collateralized using only Treasury or agency obligations under Section 13(13) of the FRA, or when the facility is provided in unusual and exigent circumstances under Section 13(3) of the FRA.

Even if the Fed can't provide CLFs to bank holding companies, it's not a significant limitation, as these companies can still meet liquidity requirements through other means.

Collateral is a crucial aspect of CLF finance. A credit union should familiarize itself with the CLF collateral process.

The CLF requires a first-priority security interest in the collateral it accepts to back facility advances. This may mean putting subordination agreements or releases in place if there are multiple creditors to which your credit union has pledged collateral.

You can use the collateral you've pledged to the Corporate, and it's also a good idea to check out the CLF collateral margins table on the NCUA CLF website.

The Federal Reserve accepts nearly all bank assets as collateral for discount window loans, and a similar policy would be suitable for CLFs. They apply a haircut to the fair value of the instrument to determine lendable value.

Basel Design plays a crucial role in collateral and security. Basel Design is a set of international banking regulations aimed at ensuring the stability of the global financial system.

The Basel Accords are a series of agreements that establish minimum capital requirements for banks, with the goal of preventing bank failures.

A key aspect of Basel Design is the calculation of risk-weighted assets, which determines the amount of capital a bank must hold against potential losses.

In Basel Design, banks are required to hold a minimum capital adequacy ratio of 8%, which means they must hold at least 8% of their risk-weighted assets in capital.

By implementing Basel Design, banks are better equipped to withstand financial shocks and maintain stability in the financial system.

The CLF provides advances for short-term, seasonal and protracted adjustment credits.

To request an advance, you'll need to follow the process detailed in NCUA CLF Operating Circular 20-02.

The CLF will not provide advances for any other purposes beyond short-term, seasonal and protracted adjustment credits.

You should familiarize yourself with the CLF Operating Circular to ensure a smooth request process.

By following the circular, you can ensure that your credit union is eligible for the advances it needs to meet its liquidity requirements.

Fees and rates play a crucial role in CLF finance. An above-market fee would only make sense if CLFs were seen as undesirable, in which case it would be simpler to just not offer them.

A market-based fee, which would be roughly 15 to 20 basis points, would be consistent with how the Fed prices its other services. This fee level would not be compliant with the Basel standard, which requires a fee of 75 basis points.

The interest rate on a loan drawn under the facility should be set at an above-market rate to discourage banks from using the facility as an ongoing source of funding. This rate should be set equal to the primary credit rate, which is currently only slightly above money market rates, but may need to be higher to achieve this goal.

A fee set at the market-based level of 15 to 20 basis points would be consistent with how the Fed prices its other services. This would be a reasonable approach, but it's not compliant with the Basel standard.

The Basel standard would require a fee of 75 basis points, which is roughly five times the market price for a similar line. This would make CLFs uneconomic, which is why no countries have adopted them.

To discourage banks from using the facility as an ongoing source of funding, the interest rate on a loan drawn under the facility should be set at an above-market rate. This would encourage banks to repay their loans quickly once their funding pressures abate.

The primary credit rate is normally priced at a premium over money market rates, so an appropriate interest rate on CLF draws may be higher than the current rate.

Purchasing lines of credit from the central bank can be seen as self-insurance, as it provides a reliable source of liquidity in times of stress. This is because the central bank is the only entity that can provide immediate and completely reliable liquidity insurance.

If "self-insurance" means having the resources to meet liquidity stress situations without relying on the government for a bailout, then lines of credit from the central bank increase self-insurance. Banks pay for these lines of credit, effectively purchasing liquidity insurance and self-insuring in the process.

Banks can't rely on deposits at commercial banks to count as high-quality liquid assets or a projected cash inflow, but deposits at the Fed do count as HQLA. This is because there's no chance that the reserve balances won't be available when needed, and deposits at the Fed don't increase interconnectedness among financial institutions.

Lines of credit from the central bank would also be reliably available and wouldn't increase interconnectedness, making them a more reliable source of liquidity than commercial bank deposits.

The banking agencies in the US are considering including central bank restricted committed facility capacity as High-Quality Liquid Assets (HQLA) for the Liquidity Coverage Ratio (LCR) requirement.

This move would allow banks to count central bank restricted committed facility capacity towards their liquidity requirements, making it a valuable source of liquidity.

The Federal Reserve would need to make several design choices if it were to offer banks Central Liquidity Facilities (CLFs) that count towards liquidity requirements in the US.

As a neutral observer, it's interesting to note that the banking agencies in the US are considering including Central Liquidity Facilities (CLFs) as a recognized source of liquidity.

In the US, the largest projected liquidity needs tend to occur after just a few days, which is why banks are held to a higher standard than the Basel standard, requiring them to have sufficient liquidity at 30 days.

The Fed would need to make several design choices if it were to offer banks CLFs that would count for liquidity requirements in the US.

The Basel standard requires banks to have sufficient liquidity at 30 days, whereas the US implementation requires banks to have enough liquidity to make it to 30 days.

As of February 26, 2020, banks had collateral pledged to the Fed that provided borrowing capacity of $1.6 trillion.

The US banking agencies are considering the merits of including central bank restricted committed facility capacity as High-Quality Liquid Assets (HQLA) for purposes of the US LCR requirement.

The Central Liquidity Facility (CLF) is a vital source of liquidity for credit unions in the United States. Created by Congress in 1979, it's an instrument of the Federal Government owned by its member credit unions and managed by the NCUA Board.

The CLF's purpose is to improve financial stability by providing member credit unions with loans to meet their liquidity needs. This encourages savings, supports consumer and mortgage lending, and provides basic financial resources to all segments of the economy.

The CLF was created because credit unions needed their own source of funds to meet their liquidity needs, just like the Federal Reserve System discount window provides for banks.

The CLF continues to be an important back-up source of liquidity for both Federal- and state-chartered credit unions.

Under the Basel standard, banks that have been provided a CLF must be extended a loan on request as long as they are solvent.

In practice, "solvent" in any U.S. implementation would probably be defined as "not critically undercapitalized."

The Fed could and should apply tighter financial soundness criteria for qualifying for a CLF.

The natural choice for the Fed would be to only provide CLFs to banks that qualify for primary credit – banks that are at least CAMELS 3 rated and adequately capitalized.

The CL Financial bailout is a prime example of regulatory and legal evasiveness. On 10th September 2012, a complaint was lodged with the Commission regarding the Directors of CL Financial, but it seemed to vanish into thin air.

The Commission's response to this complaint, dated 6th August 2018, was less than satisfactory. It concluded that the directors were not governed by the Integrity in Public Life Act (IPLA).

This conclusion is puzzling, given that CL Financial and its subsidiaries, including CLICO, were described as a private company in which the Government had a minority shareholding. The Commission's role in overseeing such a company seems to be murky at best.

The Commission's letter to the complainant stated that it considered all available information relevant to the complaint, but its findings were far from convincing. The implication is that the Commission is evading its duties and responsibilities in relation to CL Financial.

The lack of transparency and accountability in this case is alarming. It raises questions about the effectiveness of regulatory bodies and the need for greater oversight and scrutiny.

CLFs would allow banks to continue lending to businesses and households, boosting economic activity. This is a significant benefit, as it would help maintain the flow of credit during times of financial stress.

Banks could also use CLFs to replenish their High-Quality Liquid Assets (HQLA) when under stress. This would reduce the need for banks to sell or repo their HQLA in stressed markets.

The Fed would have additional tools to respond to financial crises with CLFs, enabling them to ease terms and increase capacity. This would give them more flexibility to address economic downturns.

However, there are challenges to implementing CLFs successfully. One major issue is that banks might be hesitant to borrow from the facility due to stigma associated with using the discount window.

CLFs have a perpetual maturity, meaning they can exist indefinitely unless a bank ceases being financially sound or decides to cancel the facility.

Facilities can only be canceled by the Fed with a minimum of 31 days' notice, which helps reduce cliff effects for banks that become unqualified but remain solvent.

Draws under the CLF have overnight maturities, renewable for as long as the institution has access to the CLF.

An institution with a CLF retains access for at least 31 days, ensuring credit availability for at least one day longer than the LCR's 30-day horizon.

CLFs would allow banks to continue lending to businesses and households, boosting economic activity. This would be a significant benefit, as it would keep the economy moving even during times of financial stress.

CLFs could also encourage banks to use their High-Quality Liquid Assets (HQLA) when needed, rather than selling or repurchasing them in stressed markets. This would be a more stable and efficient way for banks to manage their assets.

The Fed would gain additional tools to respond to financial crises, including the ability to ease terms and increase capacity on CLFs. This would give the Fed more flexibility to address economic downturns.

CLFs would reduce the demand for reserve balances, allowing the Federal Reserve to scale back its operations. This could lead to a more streamlined and efficient financial system.

However, there are challenges to implementing CLFs. For one, banks would need to be willing to borrow from the facility when under stress, and there is a stigma associated with using the discount window.

The stigma of borrowing from the discount window might be lessened if banks are paying for the line, as they would see it as their right to borrow.

The CL Financial bailout started on Friday 30th January 2009, and today marks the ten-year anniversary of that fateful decision to commit Public Money.

The companies bailed out were CL Financial Ltd, Colonial Life Insurance Company Ltd, Caribbean Money Market Brokers Ltd, Clico Investment Bank, and British American Insurance Company (Trinidad) Ltd.

Over $5.0 Billion in Public Money was paid to CLF in the period between 30th January 2009 and 12th June 2009, under the terms of the Memorandum of Understanding signed between then Finance Minister Karen Nunez-Tesheira and Lawrence Duprey.

That Memorandum of Understanding governed the expenditure of this vast sum of Public Money before the 12th June signing of the CLF Shareholders’ Agreement.

The initial estimate of $5.0 Billion has escalated to a present expenditure exceeding $25.0 Billion, a source of serious concern as priority was given to pay the claims of the CLF creditors over other urgent public needs.

Closing the circle is a crucial step in understanding the full extent of the CL Financial bailout. Over $25 Billion of public money was spent, but the details of the bailout are still not fully transparent.

The Ministry of Finance is claiming that the CL Financial accounts relied upon by the Finance Minister in 2012 cannot be found. This is a significant issue, as these accounts would provide crucial information about the bailout.

I've been working to get the remaining details of the bailout, and I've made progress in obtaining information about 13,200 EFPA claimants who received $10.823 Billion. However, the Consent Order entered in the Appeal Court in January 2018 has not been fully complied with.

The list of creditors of CL Financial is also missing, which is another important piece of information that is needed to fully understand the bailout. I'm challenging the non-compliance with the assistance of my attorneys.

A counterfactual is a claim or hypothesis that's contrary to the facts. This concept is relevant when analyzing the CL Financial bailout.

The CL Financial bailout involved a counterfactual scenario, where a claim was made that was contrary to the facts.

A counterfactual can be a useful tool in understanding complex financial situations like the CL Financial collapse.

Here are some key facts about counterfactuals:

Market experts are optimistic about Cleveland-Cliffs' expansion strategy. The pending Stelco acquisition could potentially reshape market dynamics in the U.S. and Canadian steel sectors.

The strong bank support, evidenced by the over-subscription, suggests positive market sentiment towards Cliffs' expansion. This move could lead to increased market share and improved competitive positioning.

Market fluctuations can be unpredictable, so investors should consider how this expansion might affect Cliffs' operational efficiency and ability to navigate potential market downturns.

Financial analysts are optimistic about Cleveland-Cliffs' recent move to amend its $4.75 billion Asset-Based Lending facility.

This significant financial maneuver demonstrates robust confidence from banking partners, with the capital request being over-subscribed by three times.

The amended ABL facility, maturing in 2028, provides Cleveland-Cliffs with enhanced financial flexibility and liquidity.

The company's strong cash position is a testament to its financial health, with no net borrowings on the facility.

Market research analysts see this move as a strategic shift in the steel industry landscape, with potential for increased market share and improved competitive positioning.

The pending Stelco acquisition could reshape market dynamics in the U.S. and Canadian steel sectors, and the strong bank support suggests positive market sentiment towards Cliffs' expansion strategy.

However, the steel industry is cyclical and subject to economic fluctuations, so investors should monitor how this expansion might affect Cleveland-Cliffs' operational efficiency and ability to navigate potential market downturns in the future.

Cleveland-Cliffs' Director of Investor Relations, James Kerr, is available for investor inquiries at (216) 694-7719.

Mervyn King, former governor of the Bank of England, proposed a system where banks would be required to maintain collateral at the central bank with lendable value equal to all their deposits and short-term borrowing.

This proposal, also suggested by Paul Tucker, former deputy governor of the BoE, is similar to allowing banks to count Central Bank Liquidity Facilities (CLFs) as High-Quality Liquid Assets (HQLA) but taken to an extreme.

Under the King and Tucker proposal, banks would essentially have to fund the central bank's haircuts on its assets with equity and long-term debt, making the collateral haircuts become Total Loss Absorbing Capital (TLAC) requirements.

In the case of the Federal Reserve, haircuts on loans vary from 5 percent to 82 percent, while TLAC requirements range from 7 to about 20 percent, which would require a massive increase in the percent of banks' assets that are funded with equity and longer-term debt.