The National Credit Union Administration (NCUA) Board took a few minutes at the start of Thursday’s meeting to comment on current events in the financial services sector. The remarks were consistent with those included in NCUA Board Chair Todd Harper’s statement released earlier this week.
While reiterating the dangers of concentration risk and the need for effective risk management policy and practices in the area of capital, interest rate risk, liquidity risk and credit risk, Harper noted that more than 91 percent of all credit union deposits are currently federally insured.
Final Rule: Subordinated Debt (Part 702)
The board adopted a final rule to make two changes to the current Subordinated Debt Rule related to the maturity of Subordinated Debt Notes and Grandfathered Secondary Capital (GSC). Specifically, the final rule extends the regulatory capital treatment of GSC to the later of 30 years from the date of issuance or Jan. 1, 2052.
This extension aligns the regulatory capital treatment of GSC with the maximum permissible maturity for secondary capital issued by Low Income Credit Unions (LICUs) under the U.S. Treasury Department’s Emergency Capital Investment Program (ECIP).
The final rule also replaces the maximum maturity of notes with a requirement that any credit union seeking to issue notes with maturities longer than 20 years demonstrate how such instruments would continue to be considered “debt.”
While the Credit Union National Association (CUNA) raised some concerns with the proposal, it noted particular support for this aspect of the proposal, as such an approach is preferable to the existing blanket prohibition against terms longer than 20 years.
Staff noted that 2022 was a busy year for subordinated debt, with 30 applications being approved (and five denied). The final rule becomes effective 30 days after publication in the Federal Register.
You can view NCUA’s recap of the board meeting here.