The NCUA board issued a proposed rule on credit union combination transactions and subordinated debt, among other items, at its Thursday board meeting. The agenda also included approval of the agency’s 2020 Annual Performance Plan and a briefing on the credit union loan interest rate ceiling.

“As the specter of bank branch closures continues to threaten communities across the country with the prospect of becoming a banking desert, we absolutely stand behind credit unions reaching out to ensure that these communities retain access to local financial services,” said Elizabeth Eurgubian, CUNA deputy chief advocacy officer. “We look forward to reviewing the NCUA’s guidance on this topic, and offering our feedback on how to best equip credit unions to advance these communities. 

Specifically, the proposal:

• Creates a new Subpart D within Part 708a to establish requirements related to transactions where a federally insured credit union proposes to assume liabilities from an institution other than a credit union;
• Addresses a federally insured credit union’s merger or consolidation with an entity other than a credit union; and
• Adds cross-references to § 741.8, to clarify its scope and applicability to the purchase of assets and assumption of liabilities by federally insured credit unions.

Comments are due within 60 days after the proposed rule is published in the Federal Register.

The subordinated debt proposal would permit low-income designated credit unions (LICUs), complex credit unions (those with at least $500 million in assets) and new credit unions (those in operation for less than ten years) to issue subordinated debt for purposes of regulatory capital treatment.

Specifically, it would create a new subpart in the final risk-based capital rule that would include requirements related to applying for authority to issue subordinated debt, credit union eligibility to issue subordinated debt, prepayments, disclosures, securities laws and the terms of a subordinated debt note.

“We appreciate the NCUA continuing to keep a critical eye on how stringent regulatory compliance standards affect credit unions’ ability to serve their members,” Eurgubian said. “We look forward to reviewing today’s proposal, and will engage with the NCUA on how to ensure that credit unions can remain the best financial partner for consumers across the country.”

All secondary capital issued after the effective date of a final rule would be subject to the requirements for subordinated debt. This change would not impact a LICU’s ability to include such instruments in its net worth.

Comments are due 120 days after the proposed rule is published in the Federal Register.

Finally, the NCUA board agreed to maintain the current temporary 18% interest rate ceiling for loans made by federal credit unions from March 11, 2020, through Sept. 10, 2021. The board is authorized to raise the ceiling beyond 15% for up to 18 months after consulting with Congress, Treasury, and other federal financial agencies.

NCUA Chairman Rodney Hood noted that the agency is interested in receiving comments on the possibility of moving from a fixed to a variable rate.

“While it is critical that the board at least maintain the current cap of 18%, we’re pleased to learn the Board will examine the potential benefits that a floating interest rate cap can provide federal credit unions managing risk portfolios,” Eurgubian said.

CUNA requested NCUA consider such a change in a letter sent to the agency last May.