Aspiring Low-Income or Complex CUs

The National Credit Union Administration (NCUA) Board is proposing to allow aspiring low-income credit unions (LICU) and non-LICU complex credit unions to issue subordinated debt.

Currently, the Federal Credit Union Act only allows LICUs to issue secondary capital.

An aspiring LICU or non-LICU complex credit union is defined as a credit union that anticipates being designated as a LICU or Nnn-LICU Complex Credit Union within 24 months following their planned issuance of the subordinated debt.

For example, there are 40 credit unions with total assets between $450 and $500 million of which 21 are non-LICUs. NCUA expects this number of credit unions may increase over time. This means more non-LICUs could be designated as aspiring complex credit unions.

However, these aspiring LICUs and non-LICU complex credit unions would not be allowed to count this subordinated debt as regulatory capital for prompt corrective action purposes until they become either an LICU or non-LICU complex credit union.

But allowing these aspiring credit unions to issue subordinated debt will fuel rapid growth. This will allow these credit unions to achieve the complex credit union threshold -- permitting these credit unions to count this subordinated debt as regulatory capital.

This proposal would subvert the purpose of prompt corrective action, which is meant to curb aggressive growth.

Moreover, this proposal regarding aspiring credit unions is troubling. The Federal Credit Union Act only discusses low-income credit unions and complex credit unions. It does not mention aspiring LICUs or non-LICU complex credit unions.

This is another case of this agency engaging in regulatory fiat.