CCUA Survey on NCUA Subordinated Debt Proposal

Comments Due Tomorrow

The NCUA Board has approved and published its Subordinated Debt proposal, representing an extensive set of amendments to existing regulations to expand access to alternative forms of capital for credit unions.

The Cooperative Credit Union Association supports the authority of credit unions to build additional capital in a way that does not dilute the cooperative ownership and governance structure of credit unions. Credit unions should have the financial base to offer member services and adjust to fluctuating economic conditions.

The Subordinated Debt Proposal would amend various parts of the NCUA’s regulations to permit low-income designated credit unions (“LICUs”), 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. Specifically, this proposal would create a new subpart in NCUA’s final risk-based capital rule (“RBC Rule”) that would address the requirements for and regulatory capital treatment of subordinated debt, pursuant to the Federal Credit Union Act’s (“FCUA”) risk-based net worth mandate for complex credit unions. This requirement is part of the prompt corrective action (“PCA”) section of the FCUA, which was added to the FCUA by the Credit Union Membership Access Act of 1998. The PCA section established for the first-time net worth and capital requirements for credit unions.

The new subpart and majority substance of the proposal 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. This proposed rule also makes various additions and amendments to other parts and sections of the NCUA's regulations.

The Association plans to file a comment letter with the National Credit Union Administration and seeks member input to inform its response on the proposed subordinated debt changes and related issues in the current economic environment. As such, the Association seeks member input in the form of a brief survey, available HERE. Your response is requested no later than Wednesday, July 1.

The full proposal by the NCUA is available HERE.