The NCUA Board is proposing to amend various parts of its regulations to permit low-income designated credit unions, complex credit unions, and new credit unions to issue subordinated debt for purposes of regulatory capital treatment. The proposed rule would create a new subpart in the final risk-based capital rule that would address the requirements for and regulatory capital treatment of subordinated debt. Comments must be received by July 08, 2020. The final risk-based capital rule will become effective on January 01, 2022.
The new subpart would, among other things, contain requirements related to applying for authority to issue subordinated debt, credit union eligibility to issue subordinated debt, prepayments, disclosures, securities laws, and the terms of a subordinated debt note. The proposed rule also makes various additions and amendments to other parts and sections of the NCUA regulations. The rule would include:
- a new section addressing limits on loans to other credit unions
- a grandfathering of any secondary capital issued before the effective date of a final subordinated debt rule
- an expansion of the borrowing rule to clarify that federal credit unions can borrow from any source
- revisions to the risk based capital rule and the payout priorities in an involuntary liquidation rule to account for subordinated debt and grandfathered secondary capital
- cohering changes to part 741 to account for the other changes proposed in this rule that apply to federally insured, state-chartered credit unions
All secondary capital issued after the effective date of a final subordinated debt rule would be subject to the requirements for subordinated debt. This change would not impact the ability of a low-income designated credit union to include such instruments in its net worth. The proposal would also preserve the regulatory capital treatment of grandfathered secondary capital for 20 years after the effective date of a final subordinated debt rule. For ease of reference, the requirements in the current secondary capital rule would be moved from their current location to a section in the new proposed subpart. These additional regulatory changes were necessary to ensure that this proposal represents a comprehensive review and revision of the NCUA regulations to appropriately account for subordinated debt.
Related Link: Federal Register Notice
Comment Due Date: July 08, 2020
Effective Date: January 01, 2022
Keywords: Americas, US, Banking, Credit Unions, Subordinated Debt, Risk-Based Capital Rule, Regulatory Capital, NCUA
Next ArticleOSFI Outlines Planned Focus Areas for 2020-2021
PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).
EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.
EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.
EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.
PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.
MAS published a statement guidance on dividend distribution by banks.
APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.
FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.
EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.
SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.