NCUA Board Proposes Sub Debt and Combination Transaction Rules

The National Credit Union Administration (NCUA) Board on January 23 proposed a rule governing the issuance of subordinated debt by credit unions.

The rule would update the authority of low-income-designated credit unions to issue subordinated debt.

The proposed rule also would authorize complex credit unions subject to the agency’s risk-based capital requirements and new credit unions to use subordinated debt under certain circumstances.

The proposal will permit aspiring low-income credit unions and complex credit unions to issue subordinated debt.

The proposed rule will allow federal credit unions to borrow from any source.

The proposal will expand the eligible investors from institutional investors to accredited investors.

Plus, the proposed rule would incorporate enhanced investor protections.

This proposal will have a comment period of 120 days.

In addition, the NCUA Board proposed a rule providing greater clarity regarding the regulations governing transactions where a federally insured credit union proposes to assume liabilities from or merge with another institution that is not a credit union.

The proposed rule:

• simplifies the basic requirements that apply to combination transactions between a federally insured credit union and another type of financial institution;
• ensures that the directors of a federally insured credit union proposing such a transaction understand the nature and ramifications of the proposed transaction; and
• makes regulatory provisions applicable to all asset purchases and lists other NCUA regulations that apply to each particular transaction.

All such transactions will require the NCUA’s approval, and state-chartered, federally insured credit unions also must obtain approval from their state regulator.

NCUA estimates that there will be approximately 20 transactions per year.