We had an opportunity to sit down and interview Central 1’s Chief Investment Officer Brent Clode. In this two-part series, we get an insider’s look into how Brent and the Treasury business supported the credit union system and what transpired in spring 2020.
Having worked through the dot-com bubble, 9/11 and the global financial crisis, Central 1’s Chief Investment Officer (CIO) Brent Clode is no stranger to major recessionary cycles. But there was something different when the World Health Organization declared COVID-19 a global pandemic in March 2020.
“When things unfolded last year, it was far more concerning than the global financial crisis. What happened in the financial markets unfolded over the course of days rather than slowly creeping up over weeks. It was sudden,” he said with his characteristic calm.
Credit markets started to freeze. The value of assets was diminishing. Commercial paper was tight and hard to issue. Banks and credit unions were deferring mortgage and loan payments for their clients. There was fear that people would need to exhaust their savings or borrow to make up for lost earnings or to service their debt.
This was a real liquidity crisis in the making – until the federal government and the Bank of Canada (BoC) stepped in to support Canadians and the economy.
Responding to the global pandemic
As CIO and an executive on Central 1’s management team, Brent has a dual role leading the Treasury line of business with a team of 80 based in Vancouver, Toronto and Mississauga. The first is successfully operating a business that offers foundational treasury products and services to credit union members and clients. The other role, where most of his experience really comes through, is liquidity risk management and funding.
Brent, along with Central 1’s CEO and management, met with the pandemic response team during the early days of the pandemic. There were endless discussions and huddles required to manage this unprecedented event. The priority was figuring out how to ensure the health and safety of employees, while ensuring confidence in the credit union system.
It was Brent and his team’s responsibility to manage Central 1’s liquidity position and understand the impacts within the credit union system when a huge portion of the population suddenly became unemployed.
“With the risk team, we modelled various scenarios and looked at individual credit unions and applied various shocks to understand what could happen to their deposits, withdrawals and loan losses. The information we had at the time painted a scary picture.”
As primary liquidity provider to the credit union system, Central 1 ensures it has appropriate levels of liquidity to support and maintain confidence in the credit union system.
“We acted swiftly. It was important we continued supporting our members when they needed us most,” said Brent.
Central 1 took many important steps in 2020 to ensure its operational resilience and that of the system.
The organization bolstered its balance sheet to create more short-term liquidity for Central 1 and accessed the capital markets. Central 1 also secured access to two BoC programs: Commercial Paper Purchase Program and Standing Term Liquidity Facility.
To support members, Central 1 facilitated a space for credit union leaders to discuss evolving issues. It was an opportunity to find shared solutions to important issues and impacts of COVID-19, through weekly member roundtable meetings and a series of Strategic Insights Webinars. The Treasury team hosted weekly securitization and market update calls.
“We had a busy couple of months,” Brent said wryly as he described Central 1’s actions and support for the system.
Kudos to credit union members
As the discussion turns to credit unions, he said, “Credit unions and our members deserve a lot of credit for their reactions at the start of the pandemic.”
Credit unions actively increased their overall liquidity through various means including securitization to create a buffer and ensure their resilience during challenging times. Members also cautiously set aside money, keeping liquidity pressures low while borrowing tightened, resulting in excess liquidity on our credit unions’ balance sheets.
‘We received a flood of deposits from our members,” he remarked. Liquidity at Central 1 continues to be robust as non-mandatory deposits remain at an all-time high, increasing by $5.2 billion during 2020. Central 1 also facilitated approximately $5 billion of new securitization transactions last year as credit unions increased system liquidity levels.
With the benefit of hindsight, he said even though there was excess liquidity in the system, it was prudent to ensure the health of the credit union system and the financial well-being of Canadians.
Brent learned a very important lesson during the Great Recession (2007-2009): “when financial markets freeze, liquidity is key.”
Few people knew the Canadian government and the BoC would take significant actions to support the economy and financial system by injecting billions of dollars through its COVID-19 economic response plan.
“Even though liquidity at the start of the pandemic became scarce and expensive, raising and maintaining as much liquidity as possible was the prudent thing to do,” Brent said.
“It’s important to recognize how the system really stepped up and showed up for their communities. The pandemic also made us more aware of interconnectedness and how important it is for the system to work together,” he emphasized.