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
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