WASHINGTON—NCUA needs to conduct a broader evaluation of proposed amendments to its 2020 Subordinated Debt Rule, CUNA, NAFCU and Inclusiv have told the agency in a joint letter.
As CUToday.info reported, the proposed rule would amend the definition of “grandfathered secondary capital” to include secondary capital issued to the U.S. Government or one of its subdivisions under an application approved before Jan. 1, 2022.
It was proposed during the board’s September 2021 meeting.
“The proposed rule ensures that LICUs that have already submitted [Emergency Capital Investment Program (ECIP)] applications will not need to revise an accompanying secondary capital plan to conform with new procedural requirements in the Subordinated Debt Rule when ECIP investment decisions are made in 2022,” wrote the organizations.
Love for Grandfather(ing)
In addition, both associations noted their support for the NCUA’s, “grandfathering of secondary capital plans approved in conjunction with LICU applications.”
According to the letter, the proposed rule would also be instrumental in facilitating efficient deployment of ECIP funding in low-and moderate-income communities, especially those hit hardest by the pandemic. The associations told the agency the board’s progress to move toward credit unions accepting long-term capital as a debt obligation was a promising sign.
In the letter, the three associations further stated they believe the parameters of the current secondary rule are more than sufficient for addressing regulatory capital treatment of ECIP investments.
“ECIP, being administered exclusively by Treasury, involves a more structured type of subordinated debt offering, and the issuances contemplated by the program were developed around the requirements of the current secondary capital rule,” the letter states.
Opposition Expressed
CUNA, NAFCU and Inclusiv further said they do not support a maximum maturity for ECIP investments, which they said “truncates the useful life of the funding as regulatory capital, noting that it would,” and would also “impair the impact of the funding in low- and moderate-income communities that need longer term capital infusion.”
CUNA, NAFCU and Inclusiv suggested NCUA conduct a broader reevaluation of the Subordinated Debt Rule in 2022 to create a more fitted framework for the subordinated debt.