(Dec. 11, 2020) As the month winds down, as well as the year, the NCUA Board apparently has decided to make the most of it — by scheduling not one but two meetings in the same week, one right after another on Thursday and Friday, including consideration of a final rule on subordinated debt.
Typically, the agency board meets once per month, and typically on the third Thursday of each month; two meetings in a month are rare. There will also (likely) be a new face at the meetings: Kyle S. Hauptman, confirmed by the Senate last week to a seat on the NCUA Board, will be available to join (after he is sworn into office).
The first meeting, on Thursday (getting underway at 10 a.m. ET and to be live streamed via the Internet), has six items on the agenda: five proposed and final rules, including a final rule on subordinated debt, and a board briefing on the 2021 normal operating level for the National Credit Union Share Insurance Fund (NCUSIF).
In January, the board unanimously issued a 275-plus page proposal to give some federally insured credit unions the ability to issue subordinated debt to help them meet their risk-based capital requirements. The proposal, issued for a 120-day comment period, would allow well-capitalized credit unions to count subordinated debt as capital for risk-based net worth purposes (the fundamental capital pool for mitigating credit union risk in their lending and investment portfolios).
Key provisions of the proposal included:
- Permission for low-income-designated credit unions (LICUs), complex credit unions, and new credit unions to issue subordinated debt for purposes of regulatory capital treatment.
- A maximum maturity of 20 years to be imposed on debt issued (with a minimum maturity of 5 years), and a minimum denomination of $100,000. The agency noted the maturity limit helps to clarify that the financial instruments issued are debt – and not equity in the credit unions (which are solely owned by the members; credit unions do not issue stock).
- Prohibitions on a credit union from being both an issuer and investor unless the credit union meets certain conditions related to mergers.
- Addition of a new section addressing new rules and limits for making loans to other credit unions, including investing in subordinated debt at those credit unions.
NCUA has said that federally insured, state-chartered credit unions (FISCUs) would be eligible for applying to issue subordinated debt if their state laws and rules allow it.
NASCUS has long said that subordinated debt should be a part of the risk-based capital framework because it encourages well-managed credit unions to attract additional loss-absorbing forms of capital that they would otherwise forego. Association leader Lucy Ito has noted that the risk-based capital rulemaking itself is intended to increase the capital buffer standing of a credit union before the share insurance fund, and that subordinated debt is consistent with that goal.
In July, NASCUS filed a comment letter in support of the proposal, writing that the development of the rule is an essential complement to the implementation of a risk-based capital rule. “Including Subordinated Debt in risk-based capital ratio calculations is consistent with the statutory purposes of both state and federal credit unions and is sound public policy,” NASCUS wrote. “This rule will help credit unions and their members, protect the share insurance fund, and help place natural person credit unions in the United States on par with credit unions and other depository institutions worldwide.”
Also on the Thursday episode of the two-day schedule of meetings are consideration of:
- A temporary final rule on regulatory relief in response to COVID-19 (Part 701)
- A proposed rule on field of membership shared facility requirements (Part 701, Appendix B, of NCUA rules);
- A proposed rule on mortgage servicing rights (Parts 703 and 721);
- A proposed rule on overdraft policy (Part 701).
The board will also hear a briefing on the 2021 “normal operating level” (NOL) for the NCUSIF, which is the level of reserves to insured savings that the fund is required to operate under (within a range set by law) each year.