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In a joint letter to NCUA Secretary of the Board Melanie Conyers-Ausbrooks, NAFCU and Inclusiv, a national association for community development financial institutions (CDFIs) and low-income credit unions (LICUs), shared comments on the NCUA’s proposed amendments to its 2020 Subordinated Debt Rule. 

The proposed rule would amend the definition of “grandfathered secondary capital” to include secondary capital issued to the U.S. Government or one of its subdivisions under an application approved before Jan. 1, 2022 and was proposed during the board’s September meeting.

“The proposed rule ensures that LICUs that have already submitted [Emergency Capital Investment Program (ECIP)] applications will not need to revise an accompanying secondary capital plan to conform with new procedural requirements in the Subordinated Debt Rule when ECIP investment decisions are made in 2022,” wrote the organizations. In addition, both associations noted their support for the NCUA’s, “grandfathering of secondary capital plans approved in conjunction with LICU applications.”

The proposed rule would also be instrumental in facilitating efficient deployment of ECIP funding in low-and moderate-income communities, especially those hit hardest by the pandemic. The associations wrote that the NCUA Board’s progress to move toward credit unions accepting long-term capital as a debt obligation was a promising sign.

In the letter, both associations mentioned that the parameters of the current secondary rule are more than sufficient for addressing regulatory capital treatment of ECIP investments, stating, “the ECIP, being administered exclusively by Treasury, involves a more structured type of subordinated debt offering, and the issuances contemplated by the program were developed around the requirements of the current secondary capital rule.”

Of note, NAFCU and Inclusiv did share that they do not support a maximum maturity for ECIP investments that truncates the useful life of the funding as regulatory capital, noting that it would, “ impair the impact of the funding in low- and moderate-income communities that need longer term capital infusion.”

Both associations do, however, appreciate the NCUA responsiveness to these and other concerns, as seen in the Agency’s recent Letter to Credit Unions. The associations suggested NCUA conduct a broader reevaluation of the Subordinated Debt Rule in 2022 to create a more fitted framework for the subordinated debt. 

NAFCU regularly engages with NCUA to ensure credit union concerns are heard, had has encouraged credit unions to participate in submitting comments on related Regulatory Alerts. For more information, view the association’s Regulatory Alert breaking down the proposed rule. The association will continue to keep credit unions informed on how this rulemaking will impact them and their members. Read the full letter here.