WASHINGTON—While CUNA said it “generally supports” NCUA’s proposal on subordinated debt, the trade association offered several suggestions it is saying will improve the rule.
Separately, the trade group also authored a number of other comment letters, as outlined below.
The subordinated debt proposal would permit low-income designated credit unions, complex credit unions and new credit unions to issue subordinated debt for purposes of regulatory capital treatment, including for purposes of complying with the NCUA’s new risk-based capital requirement.
In its comment letter, CUNA noted it is a longtime supporter of access to alternative forms of capital, particularly since the 2008 financial crisis, which “demonstrated the need for and showed how credit unions would use alternative capital.”
“Our members have mentioned the importance of alternative capital as another source of capital for various liquidity needs, giving credit unions flexibility for their day to day operations as they grow and become more sophisticated,” the letter states. “Regardless of how a credit union utilizes alternative capital, our members have consistently emphasized that a chief lesson from the financial crisis is that capital is king. While credit unions as a whole remain well capitalized, credit unions are the only financial institutions with no ability to raise capital other than through retained earnings.
“However, the [subordinated debt proposal] would go a long way toward allowing credit unions to raise additional capital and thereby minimize any risk to the NCUSIF,” the letter adds.
Focus is on Authority
CUNA said its focus is on NCUA’s authority to issue such a rule under the Federal Credit Union Act.
“The reason to move forward with a rule is as simple as the fact that the FCUA gives the NCUA board authority to authorize this rule and credit unions have a need, as do all financial institutions, for alternative forms of capital,” the letter reads.
Other Provisions
Among other things, allowable subordinated debt under the proposal would:
- Have a maturity of at least five years and not more than 20 years from issuance
- Be subordinate to all other claims in liquidation and have the same payout priority as all other outstanding subordinate debt and grandfathered secondary capital
- Be unsecured
- Be available each fiscal year to cover any deficit in retained earnings on a pro rata basis among all holders of the subordinated debt and grandfathered secondary capital
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The House Armed Services Committee has passed its version of the fiscal year 2021 National Defense Authorization Act (NDAA) Wednesday evening without a credit union-opposed provision that would expand a military base lease exemption to include banks.
CUNA Has Message for New FASB Chair
CUNA issued a statement welcoming the new chairman of the Financial Accounting Standards Board (FASB), Richard Jones, with a letter sent Wednesday. In the letter CUNA noted it has steadfastly maintained that CECL, which recognizes lifetime expected credit losses as opposed to the current “incurred-loss” approach, is inappropriate for credit unions. CUNA has also called for CECL implementation to be delayed to at least 2024 due to the ongoing pandemic.
“CECL is intended to address delayed recognition of credit losses resulting in insufficient funding of the allowance accounts of certain covered entities. However, underfunding of allowance accounts has not generally been an issue for credit unions,” the letter states. “Further, the typical user of a credit union’s financial statements is not a public investor—such as with large, public banks—but instead is the credit union’s prudential regulator, the NCUA.”
Support for E-Sign Modernization Act
CUNA also sent a letter in support of the E-Sign Modernization Act of 2020, introduced by Sen. John Thune (R-SD), which that would make modernizations to the Electronic Signatures in Global and National Commerce Act’s provisions regarding requirements to consent to electronic disclosures. The bill would remove the requirement in the Electronic Signatures in Global and National Commerce Act requiring consumers to reasonably demonstrate their ability to access information electronically prior to consenting to electronic records.
“The E-Sign Modernization Act of 2020 is a strong step toward balancing community health with financial well-being,” said CUNA President/CEO Jim Nussle. “Enhancing consumer access to online services will ensure that consumers and the financial first responders meeting their pecuniary needs remain safe in our current operating environment.”