(Sept. 24, 2021) A proposed change to the new subordinated debt rule to accommodate credit union access to federal investment programs – but making no other changes to the rule taking effect Jan. 1 – was approved unanimously for a 30-day comment period by the NCUA Board Thursday.
In other action, the board agreed – on a split vote, with Chairman Todd Harper dissenting – to act on three outstanding proposed rules over the course of the next three, monthly board meetings dealing with credit union service organization (CUSO) authorities, field of membership (FOM) shared service facility requirements, and mortgage servicing rights (see following item).
The subordinated debt proposal, according to NCUA staff, would amend the definition of “grandfathered secondary capital” to include any secondary capital issued to the U.S. government or one of its subdivisions under an application approved before Jan. 1, “irrespective of the date of issuance” (that is, when funds are issued), primarily to benefit low-income credit unions (LICUs).
According to NCUA, the benefit would accrue to the LICUs that are either participating in the Treasury Department’s Emergency Capital Investment Program (ECIP) — or other programs administered by the federal government – “that can be used to fund secondary capital, if they do not receive the funds for such programs by Dec. 31, 2021.”
This proposal also provides that the expiration of regulatory capital treatment for the issuances is the later of 20 years from the date of issuance or Jan. 1, 2042, according to NCUA.
The ECIP (created by this year’s Consolidated Appropriations Act) directs Treasury to make investments in “eligible institutions” to financially support small businesses and consumers in low-income and underserved communities. Those institutions include federally insured credit unions that are minority depository institutions (MDIs) or community development financial institutions (CDFIs) that are in sound financial condition. The investments are made in the form of subordinated debt.
However, although LICUs are also eligible to apply to NCUA for secondary capital treatment for the investments, under current rules those institutions approved by NCUA for the program and not funded by year’s end would have to reapply for regulatory capital treatment under the subordinated debt rule.
The proposal would permit funding of secondary capital approved under the current rule, beyond 2021, without the need to reapply under the subordinated debt rule – thus giving those credit unions a measure of regulatory relief.
According to NCUA, as of Sept. 17, 44 LICUs have received approval to issue secondary capital under the ECIP for an aggregate amount of approximately $1.9 billion.