NCUA plan would exempt public funds from subordinated debt rule | Journal of Credit Unions

Billions of funds earmarked for credit unions under the Treasury’s emergency capital investment program could be exempt from the National Credit Union Administration’s pending subordinated debt rule.

Credit unions would prefer the option of using the ECIP money to meet their risk-based capital requirements, but this would not be possible under the current rule, which prohibits the use of the money. government programs for this purpose.

At a meeting of the NCUA on Thursday, the board of directors approved a secondary capital acquisition proposal issued by the United States government on the condition that it be requested by January 1, 2022. It doesn’t matter when a credit union receives the funds.

The subordinated debt rule was finalized in December 2020 and will enter into force on January 1, 2022.

ECIP was created to encourage low and moderate income community financial institutions to increase their efforts to support consumers and small businesses in their communities. It was instituted by the consolidated finance law of 2021.

NCUA President Todd Harper said Thursday that as of September 17, the agency has granted 44 low-income credit unions the ability to treat about $ 1.9 billion of ECIP funds as secondary capital.

Harper said that $ 4 billion of ECIP’s total of $ 9 billion is reserved for institutions with less than $ 2 billion in assets, and $ 2 billion of that is reserved for institutions with less than $ 500 million. dollars in assets.

With median assets of less than $ 50 million and three out of four federally insured credit unions with less than $ 200 million in assets, the industry is well positioned to benefit from the program, he said. declared.

“I again encourage credit unions to step in and mobilize to support the communities they serve that have been disproportionately affected by the pandemic,” said Todd Harper, NCUA President.

Under the subordinated debt rule, hundreds of credit unions that meet certain criteria will be allowed to sell debt to investors and use the proceeds to meet risk-based capital requirements.

NCUA staff said the maximum any credit union could get from the treasury program is $ 250 million, but some credit unions have asked for as little as $ 10 million.

Vice President Kyle Hauptman said some credit unions may already rely on cash, but warned that any “free money” program tends to attract many applications, such as the check protection program. Small Business Administration payroll.

But NCUA staff members said they understood that no institution that applied would be completely excluded, except in extenuating circumstances.

“With the adjustment proposed today, credit unions whose applications are approved in 2021 will not have to redo paperwork or resubmit an NCUA application. This adjustment is good news, ”Hauptman said.

The economic crisis caused by the COVID-19 pandemic has severely affected low and moderate income communities, according to Harper. Significant job losses have made it increasingly difficult for individuals and families in these communities to pay for basic needs, he said.

The ECIP program will invest in the financial institutions best positioned to help those who have been most affected.

“I again encourage credit unions to step in and mobilize to support the communities they serve that have been disproportionately affected by the pandemic,” he said.

Board member Rodney Hood said he “happily supports” all efforts that will help community development finance institutions and minority depositories.

“It is the institutions that are (…) the first responders when it comes to access,” he said.

The subordinated debt rule had been debated for years before the NCUA board reached an agreement on its parameters in December 2020.

The comment period for the proposed rule is 30 days from its publication in the Federal Register.

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