Subordinated debt rule would help lending to underserved communities

December 6, 2022

CUNA supports NCUA’s subordinated debt proposal, it wrote to the agency in comments filed Monday. The current subordinated debt rule limits the maturity of Subordinated Debt Notes to a maximum of 20 years and terminates regulatory capital treatment for Grandfathered Secondary Capital (GSC) after 20 years beginning on the later of the date of issuance or Jan. 1, 2022.

The proposed rule would extend the regulatory capital treatment of GSC to the later of 30 years from the date of issuance or Jan. 1, 2052.

“We agree with the agency that this change is necessary to enable low-income credit unions (LICUs) that are participating in the Treasury Department’s Emergency Capital Investment Program (ECIP) to receive the program’s maximum benefit,” the letter reads. “As noted by the NCUA, capital with longer maturities helps credit unions make more loans to underserved communities and improve the economic well-being in these areas.”

CUNA also believes the 20-year limit, even as potentially amended under the proposal, continues to disadvantage credit unions over banks.

“We ask the NCUA to undertake a holistic review of the subordinated debt rule to assess whether and to what extent it is restricting low-income credit unions and other credit unions designated as a minority depository institution,” the letter reads. “Such a review should include a disparate impact analysis.”