ALEXANDRIA, Va.–In a new Letter to Credit Unions, NCUA said any issuances of secondary capital not completed by Jan. 1 will be subject to the requirements of the new subordinated debt rule, which becomes effective on that date.
There is, however, one potential exception. In NCUA Letter 21-CU-13, the agency said low-income designated credit unions are allowed to issue secondary capital approved in 2021, irrespective of the date of issuance, under a proposed rule issued by the agency in September. A final version of the rule will be considered by the NCUA board by Jan. 1, according to the letter.
As CUToday.info reported, the subordinated debt rule was approved by the NCUA board in December 2020 with an effective date of the beginning next year. That rule permits well-capitalized, federally insured credit unions to count subordinated debt as capital for risk-based net worth purposes.
The proposal issued in September would amend that rule, slightly, by accommodating low-income credit union (LICU) access to federal investment programs, most notably the Treasury Department’s Emergency Capital Investment Program (ECIP). As reported, that program 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.
What’s Permitted
The BCYA proposal would permit the 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.
“Given the current 45-day review period for secondary capital plans, any low-income credit union still planning to submit a secondary capital plan should do so as soon as possible,” the NCUA letter reads. “Further, if a low-income designated credit union plans to submit a secondary capital plan this year, it should consider using the application requirements in section 702.408 of the final subordinated debt rule when drafting its plan and submitting an application. This can help avoid having to resubmit documentation as long as the application meets the requirements of the final rule.”