NAFCU shares core recommendations on subordinated debt
In response to the NCUA's request for comment on its proposal to allow low-income credit unions (LICUs), complex credit unions, and newly-formed credit unions to issue subordinated debt that operates as regulatory capital, NAFCU Wednesday expressed support for the proposal but urged the agency to reconsider the rule's complex procedural requirements that could discourage investors and issuers.
The issue of subordinated debt was included on the NCUA's fall rulemaking agenda and NAFCU has long advocated for a rule that would allow all credit unions to grow. Amid the coronavirus pandemic, the association called on the agency to fast-track this proposal and offer streamlined approval for secondary capital applications.
In the letter, NAFCU Senior Counsel for Research and Policy Andrew Morris noted the use of subordinated debt offers credit unions "an additional source of capital to manage risk, achieve growth, and maintain liquidity during times of economic uncertainty."
"In good times, subordinated debt can help credit unions embrace organic asset growth without fear of diluting net worth—a problem that is magnified in the credit union industry due to heavy reliance on retained earnings," he added. "During economic downturns, subordinated debt can serve as a buffer against capital losses and strengthen the resilience of both individual credit unions and the National Credit Union Share Insurance Fund (NCUSIF), and accelerate recovery."
Morris shared recommendations from NAFCU and its member credit unions to "help ensure that potential issuers are not discouraged by the high cost of adopting inflexible, securities-based requirements for offerings or a potentially lengthy, open-ended review process."
"Removing these barriers will yield a proposal that is viable for all parties to subordinated debt transactions while preserving the safeguards that have contributed to the success of the NCUA’s secondary capital rule," wrote Morris.
The recommendations include:
- simplifying the process for issuing subordinated debt, modeling it after the existing framework for secondary capital;
- evaluating subordinated debt applications within a shorter, definite, timeframe;
- not arbitrarily limiting approved applications to a one year "use-by" date; and
- not prohibiting credit unions from behind both issuers and purchasers of subordinated debt.
Morris also shared the association's support for the rule, highlighting the core benefits of the proposal: Better options to guard against risk, a path to safely pursue growth, and regulatory capital flexibility that contributes to credit unions’ competitive viability.
Additionally, Morris urged the NCUA to consider other technical improvements and expressed general support for the proposed aggregate limits, with some modifications, on subordinated debt investments by credit unions.
More information on the NCUA's subordinated debt proposal can be found in NAFCU's Regulatory Alert.
Add to Calendar 2021-02-26 14:00:00 2021-02-26 14:00:00 The CDFI Rapid Response Program With the recent COVID-19 relief legislation, unprecedented levels of funding are being directed to underserved communities, especially communities of color. Community Development Financial Institution (CDFI) certified credit unions have a critical role to play in deploying these funds. The CDFI Fund's Rapid Response Program (RRP) opens by February 25th, making available $1.25 billion in grants to CDFIs. This webinar will help you to prepare for the RRP and other CDFI applications. All first-time CDFI Fund grant applicants are urged to attend. Don’t miss this unique opportunity to learn more about how your credit union can tap into these resources for the benefit of the members and communities you serve. CDFI certification is an essential credential for credit unions with a focus on financial inclusion today. If you have never applied for a CDFI grant, don’t miss this critical webinar. Key Takeaways Review updated information about the RRP opportunity and application process Walk through critical first steps to complete before you apply for CDFI Fund grant Register NowRegistration is complimentary, but you must register to attend.One registration gives your entire credit union access to the on-demand recording until February 26, 2022.Already registered? Go to the Online Training Center to view live. Who Should Attend? Chief Executive Officers (CEOs) Chief Lending Officers (CLOs) Business Lending Staff Lending Staff Education Credits This webinar doesn't qualify for any continuing education credits recognized by NAFCU or NASBA. About Our Webinars Our webinars are streamed live from NAFCU headquarters near Washington, D.C. Your audio/video feed of the presenters includes presentation slides and downloadable handouts. You can easily submit your questions to the presenters at any time during the live broadcast, with no dialing over the phone! The audio and video stream directly through your computer. Web NAFCU email@example.com America/New_York public
Add to Calendar 2021-02-25 14:00:00 2021-02-25 14:00:00 Fundamentals of Credit Union Subordinated Debt This webinar will cover NCUA’s new rule authorizing the issuance of subordinated debt by natural person credit unions for purposes of regulatory capital treatment. Previously only low-income credit unions could issue subordinated debt that can count toward their net worth requirement. Under the rule, complex credit unions and new credit unions, as well as low-income credit unions, may issue subordinated debt that can count toward their risk-based capital requirement. The webinar will address material terms of the rule and the subordinated debt instrument. We’ll also cover the regulatory approval process, eligible investors, the offering process, reasons to issue subordinated debt and the current interest rate environment. Key Takeaways Understand managing the regulatory approval process. Gain familiarization with key terms of the subordinated debt note. Review the issuance and marketing process. Discuss current market dynamics for credit union sub debt. Purchase Now$295 Members | $395 Nonmembers (Additional $50 for CD)One registration gives your entire credit union access to the on-demand recording until February 25, 2022.Already registered? Go to the Online Training Center to view live. Who Should Attend? NAFCU Certified Compliance Officers (NCCOs) NAFCU Certified Risk Managers (NCRMs) Chief Executive Officers Executive Vice Presidents Chief Financial Officers Education Credits NCCOs will receive 1.5 CEUs for participating in this webinar. NCRMs will receive 1.5 CEUs for participating in this webinar. CPA credit information is below; recommended 1.5 CPE credits. CPA Certification Credit Information Reviewer: Josie Collins, Associate Director of Education, NAFCU Learning Objectives: Understand managing the regulatory approval process. Gain familiarization with key terms of the subordinated debt note. Review the issuance and marketing process. Discuss current market dynamics for credit union sub debt. Program Level: Basic Prerequisites Needed: None Advance Preparation Needed: None Delivery Method: Group Internet-Based Recommended CPE Credits: 1.5 credits Recommended Field of Study: Finance - Technical National Association of Federal Credit Unions (NAFCU) is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. Learn more. About Our Webinars Our webinars are streamed live from NAFCU headquarters near Washington, D.C. Your audio/video feed of the presenters includes presentation slides and downloadable handouts. You can easily submit your questions to the presenters at any time during the live broadcast, with no dialing over the phone! The audio and video stream directly through your computer. Web NAFCU firstname.lastname@example.org America/New_York public
Credits: NCRM, NCCO, CPE
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