NCUA Issues Letter on Subordinated Debt Rule Effective January 1

(From CUNA) – NCUA issued a Letter to Credit Unions (21-CU-13) reminding all federally insured credit unions the final subordinated debt rule becomes effective Jan. 1, 2022. The final rule amends various parts of the NCUA’s 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.

Any issuances of secondary capital not completed by January 1, 2022, will be subject to the requirements of the final rule, with one potential exception discussed below. Any low-income designated credit union that does not complete its secondary capital issuance by the above mentioned date will be required to be approved under the final rule, if such low-income credit union seeks to issue subordinated debt, per the letter.

The NCUA board proposed an amendment to the subordinated debt rule at its September meeting that would allow low-income designated credit unions to issue secondary capital approved in 2021, irrespective of the date of issuance, provided such issuances are to the United States government or one of its subdivisions.

CUNA supported this proposal in its comments. According to NCUA, the board will consider a final version of this proposal before Jan. 1, 2022.

“Given the current 45-day review period for secondary capital plans, any low-income credit union still planning to submit a secondary capital plan should do so as soon as possible. Further, if a low-income designated credit union plans to submit a secondary capital plan this year, it should consider using the application requirements in section 702.408 of the final subordinated debt rule when drafting its plan and submitting an application,” NCUA’s letter reads. “This can help avoid having to resubmit documentation as long as the application meets the requirements of the final rule.”