ALEXANDRIA, Va.—Citing the growing need for subordinated debt to help credit union bottom lines as well as their ability to serve the underserved, the NCUA board voted 3-0 in favor of the Subordinated Debt Emergency Capital Investment Program proposed rule.
The rule is out for a 30-day comment period.
The proposal would amend the subordinated debt regulation, which NCUA finalized in December 2020, that takes effect Jan. 1, 2022. As with secondary capital, the subordinated debt proposal requires a preapproval process.
The proposal amends the definition of “grandfathered secondary capital” to include any secondary capital issued to the United States government under an application approved before Jan. 1, 2022, regardless of the date of issuance, to permit the funding of secondary capital approved under the current rule, beyond 2021, without the need to reapply under the subordinated debt rule.
“The proposed change would benefit eligible low-income credit unions that are either participating in the U.S. Department of the Treasury’s Emergency Capital Investment Program — commonly known as ECIP — or other programs administered by the U.S. government that can be used to fund secondary capital if they do not receive the funds by Dec. 31, 2021,” explained Board Chairman Todd Harper.
The proposal would also provide that the expiration of regulatory capital treatment for these issuances is the later of 20 years from the date of issuance or Jan. 1, 2042.
“The economic crisis caused by the COVID-19 pandemic has disproportionately affected low- and moderate-income communities,” stated Harper. “Significant job losses in these places have made it increasingly difficult for individuals and families — many of whom are people of color — to pay for essential needs. To provide a measure of relief, Congress enacted the ECIP, which authorizes the U.S. Department of the Treasury to make investments in certified Community Development Financial Institutions and minority depository institutions to support their efforts to “provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially in low-income and underserved communities.”
Vice Chairman Kyle Hauptman noted that with the adjustments to the existing rule, credit unions whose applications are approved in 2021 won’t have to redo any paperwork or resubmit an application to the NCUA.
“This is welcome news,” stated Hauptman. “When the ECIP program was first announced, I encouraged CDFI and MDI (Minority Deposit Institutions) credit unions to take advantage of this funding as I believe it will raise the visibility of credit unions in underserved communities. In times of crisis credit unions step up for their members. For CDFI and MDI credit unions, it goes beyond providing financial services. It includes engaging with community leaders; coordinating with businesses and creating coalitions to support those in need. This funding will help them do that.”