Rule2021-27643
Subordinated Debt
Primary source
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Published
December 23, 2021
Effective
January 1, 2022
Issuing agencies
National Credit Union Administration
Abstract
The NCUA Board (Board) is amending the Subordinated Debt rule, which the Board finalized in December 2020 with an effective date of January 1, 2022. This final rule amends the definition of "Grandfathered Secondary Capital" to include any secondary capital issued to the United States Government or one of its subdivisions (U.S. Government), under a secondary capital application approved before January 1, 2022, irrespective of the date of issuance. This amendment will benefit eligible low-income credit unions (LICUs) that are either participating in the U.S. Department of the Treasury's (Treasury) Emergency Capital Investment Program (ECIP) or other programs administered by the U.S. Government that can be used to fund secondary capital, if they do not receive the funds for such programs by December 31, 2021. The Board is also amending the Subordinated Debt rule by extending the expiration of regulatory capital treatment for the aforementioned secondary capital issuances to the later of 20 years from the date of issuance or January 1, 2042.
Full Text
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<title>Federal Register, Volume 86 Issue 244 (Thursday, December 23, 2021)</title>
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[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Rules and Regulations]
[Pages 72807-72810]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-27643]
[[Page 72807]]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 702 and 741
RIN 3133-AE98
Subordinated Debt
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
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SUMMARY: The NCUA Board (Board) is amending the Subordinated Debt rule,
which the Board finalized in December 2020 with an effective date of
January 1, 2022. This final rule amends the definition of
``Grandfathered Secondary Capital'' to include any secondary capital
issued to the United States Government or one of its subdivisions (U.S.
Government), under a secondary capital application approved before
January 1, 2022, irrespective of the date of issuance. This amendment
will benefit eligible low-income credit unions (LICUs) that are either
participating in the U.S. Department of the Treasury's (Treasury)
Emergency Capital Investment Program (ECIP) or other programs
administered by the U.S. Government that can be used to fund secondary
capital, if they do not receive the funds for such programs by December
31, 2021. The Board is also amending the Subordinated Debt rule by
extending the expiration of regulatory capital treatment for the
aforementioned secondary capital issuances to the later of 20 years
from the date of issuance or January 1, 2042.
DATES: The final rule is effective January 1, 2022.
FOR FURTHER INFORMATION CONTACT: Justin Anderson, Senior Staff
Attorney, (703) 518-6556, Office of General Counsel, National Credit
Union Administration, 1775 Duke Street, Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Summary of Comments Received by the Board
III. Final Rule
IV. Administrative Law Matters
A. Administrative Procedure Act
B. SBREFA
C. Paperwork Reduction Act
D. Regulatory Flexibility Act Analysis
E. Executive Order 13132
F. Assessment of Federal Regulations and Policies on Families
I. Background
A. Subordinated Debt Rule
At its December 2020 meeting, the Board issued a final Subordinated
Debt rule permitting LICUs, Complex Credit Unions, and New Credit
Unions to issue Subordinated Debt for purposes of Regulatory Capital
treatment.\1\ Relevant to this final rule, the Subordinated Debt rule
grandfathered secondary capital issued before January 1, 2022, and
allowed such secondary capital to receive regulatory capital treatment
until January 1, 2042 (20 years from the effective date of the
Subordinated Debt rule).\2\ The grandfathering provision of the
Subordinated Debt rule allows LICUs with grandfathered secondary
capital to continue to be subject to the requirements of 12 CFR
701.34(b), (c), and (d) (recodified in the December 2020 final
Subordinated Debt rule as 12 CFR 702.414), rather than the requirements
of the Subordinated Debt rule.\3\
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\1\ 86 FR 11060 (Feb. 23, 2021). Capitalized terms in this
preamble are defined in the December 2020 Subordinated Debt final
rule.
\2\ Id. at 11074.
\3\ Id.
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The Subordinated Debt rule also includes a provision stating that
any issuances of secondary capital not completed by January 1, 2022,
are, as of January 1, 2022, subject to the requirements applicable to
Subordinated Debt in the Subordinated Debt rule.\4\ This provision
would nullify any approved secondary capital application if the
associated issuance is not completed before January 1, 2022. Any LICU
in this situation would be required to reapply under the Subordinated
Debt rule if such LICU sought to proceed with its planned secondary
capital issuance.
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\4\ Id. at 11083.
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B. Emergency Capital Investment Program
Subsequent to the issuance of the Subordinated Debt rule, Congress
passed the Consolidated Appropriations Act, 2021 (CAA).\5\ The CAA,
among other things, created the ECIP. Under the ECIP, Congress
appropriated funds and directed Treasury to make investments in
``eligible institutions'' to support their efforts to ``provide loans,
grants, and forbearance for small businesses, minority-owned
businesses, and consumers, especially in low-income and underserved
communities.'' \6\ The definition of ``eligible institutions'' includes
federally insured credit unions that are minority depository
institutions or community development financial institutions, provided
such credit unions are not in troubled condition or subject to any
formal enforcement actions related to unsafe or unsound lending
practices.\7\
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\5\ Consolidated Appropriations Act, 2021, Public Law 116-260
(H.R. 133), Dec. 27, 2020.
\6\ Id. codified at 12 U.S.C. 4703a et seq.
\7\ 12 U.S.C. 4703a(a)(2).
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Under the terms developed by Treasury, investments in eligible
credit unions will be in the form of subordinated debt. Treasury also
aligned its investments in LICUs with the Federal Credit Union Act and
the NCUA's regulations to allow eligible LICUs to apply to the NCUA for
secondary capital treatment for these investments.
Treasury opened the ECIP application process on March 4, 2021, with
an application deadline of May 7, 2021. Treasury subsequently extended
this deadline multiple times, with the most recent deadline being
September 1, 2021.
C. Summary of the Proposed Rule
At its September 2021 meeting, the Board issued a notice of
proposed rulemaking to amend the Subordinated Debt rule to address a
specific situation with funding of approved secondary capital
applications.\8\
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\8\ 86 FR 53567 (Sept. 28, 2021).
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As discussed in subsection A of this section, if the ECIP
investments, or investments from any other programs administered by the
U.S. Government that can fund secondary capital, are not funded by the
end of 2021, those approved LICUs would be required to reapply under
the Subordinated Debt rule to complete an issuance. As this scenario
would impose an unnecessary burden on these LICUs, the Board proposed
to amend the Subordinated Debt rule to permit funding of secondary
capital approved under the current secondary capital rule, beyond 2021,
without the need to reapply under the Subordinated Debt rule.
Regardless of the issuance date of the secondary capital, such
secondary capital would, for the purposes of the Subordinated Debt
rule, be considered Grandfathered Secondary Capital, and remain subject
to 12 CFR 701.34(b), (c) and (d) of the NCUA's regulations (recodified
in the December 2020 final Subordinated Debt rule as 12 CFR 702.414).
The Board notes that the proposed changes were narrowly tailored to
provide an exception to the issuance cutoff date, if the secondary
capital issuance is:
1. To the U.S. Government; and
2. Being conducted under a secondary capital application that was
approved before January 1, 2022, under either Sec. 701.34 of the
NCUA's regulations, for federal credit unions, or Sec. 741.203 of the
NCUA's regulations, for federally insured, state-chartered credit
unions.
[[Page 72808]]
Consistent with the final Subordinated Debt rule, any LICU not
meeting the above criteria will remain subject to the requirement to
complete any issuance by the end of 2021 or such issuance will be
subject to the requirements of the final Subordinated Debt rule.
The Board also proposed to amend the starting point for
Grandfathered Secondary Capital to retain its status as Regulatory
Capital. Currently, the Subordinated Debt rule states that all
Grandfathered Secondary Capital will be treated as regulatory capital
until January 1, 2042 (20 years from the effective date of the final
Subordinated Debt rule). As the proposed rule would allow limited
issuances of Grandfathered Secondary Capital beyond January 1, 2022,
the Board proposed to allow such secondary capital to count as
regulatory capital for up to 20 years from the date of issuance. The
Board noted that this proposed amendment would provide equitable
treatment for all issuances of Grandfathered Secondary Capital.
II. Summary of Comments
A. The Public Comments, Generally
The NCUA received 15 comments following publication of the proposed
rule. All of the commenters that addressed the proposed rule were in
support of the proposed amendments. There were no commenters that
opposed the proposed amendments.
B. Comments Outside the Scope of the Proposed Rule
All of the commenters recommended additional changes to the
Subordinated Debt rule. In the proposed rule, however, the Board stated
the proposed changes contained therein were narrowly tailored to
address a specific situation with funding of approved secondary capital
applications.\9\ Therefore, the Board noted it was not considering any
other changes to the final Subordinated Debt rule at that time and
comments outside the scope of the proposed rule would be treated as
such for the purpose of any final rule the Board may issue.\10\
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\9\ Id. at 53568.
\10\ Id.
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While the comments recommending changes to the Subordinated Debt
rule are outside the scope of this rulemaking, the Board will retain
these comments for use in any future proposals to amend the
Subordinated Debt rule.
III. Final Rule
As no commenters opposed the proposed rule, the Board is finalizing
the proposed amendments without change.
V. Administrative Law Matters
A. Administrative Procedure Act
The Administrative Procedure Act (APA) generally requires that a
final rule be published in the Federal Register no less than 30 days
before its effective date except for (1) substantive rules which grant
or recognize an exemption or relieve a restriction; (2) interpretative
rules and statements of policy; or (3) as otherwise provided by the
agency for good cause.\11\ Because the final rule relieves a
restriction, the final rule is exempt from the APA's delayed effective
date requirement.\12\ Therefore, this final rule will become effective
on January 1, 2022.
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\11\ 5 U.S.C. 553(d).
\12\ Id. 553(d)(1).
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B. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) (SBREFA) generally provides for congressional review
of agency rules.\13\ A reporting requirement is triggered in instances
where the NCUA issues a final rule as defined by Section 551 of the
APA.\14\ The NCUA does not believe this rule is a ``major rule'' within
the meaning of the relevant sections of SBREFA. As required by SBREFA,
the NCUA will submit this final rule to the Office of Management and
Budget for it to determine if the final rule is a ``major rule'' for
purposes of SBREFA. The NCUA also will file all appropriate
Congressional reports.
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\13\ Id. 801-804.
\14\ Id. 551.
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C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.)
requires that the Office of Management and Budget approve all
collections of information by a Federal agency from the public before
they can be implemented. Respondents are not required to respond to any
collection of information unless it displays a valid Office of
Management and Budget control number. This final rule extends the time
for certain issuances of secondary capital and the corresponding
Regulatory Capital treatment of such issuances. As such, this rule does
not require any information collection as defined by the Paperwork
Reduction Act of 1995.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \15\ generally requires an
agency to consider whether the rule it proposes will have a significant
economic impact on a substantial number of small entities. For purposes
of the RFA, the Board considers credit unions with assets less than
$100 million to be small entities.\16\
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\15\ Id. 601 et seq.
\16\ NCUA Interpretive Ruling and Policy Statement 15-1. 80 FR
57512 (Sept. 24, 2015).
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The Board determined that the proposed rule would affect a small
number of LICUs with approved secondary capital applications for
issuances to the U.S. Government or its subdivisions. The rule is
focused on relieving administrative application requirements that would
otherwise apply. As such, the Board found that an RFA analysis was not
required for the proposed rule. Accordingly, the Board certifies that
the final rule does not have a significant economic impact on a
substantial number of small credit unions.
E. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. The
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order to adhere to fundamental
federalism principles.
The rule relieves administrative application requirements that
would otherwise apply and does not alter substantive requirements that
apply to state-chartered credit unions generally. The Board has
therefore determined that this rule does not constitute a policy that
has federalism implications for purposes of the executive order.
F. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this rule will not affect family well-
being within the meaning of Sec. 654 of the Treasury and General
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681
(1998).
List of Subjects
12 CFR Part 702
Credit unions, Reporting and recordkeeping requirements.
12 CFR Part 741
Bank deposit insurance, Credit unions, Reporting and recordkeeping
requirements.
[[Page 72809]]
By the NCUA Board on December 16, 2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the preamble, the NCUA is amending 12
CFR parts 702 and 741, as amended by 86 FR 11060 (Feb. 23, 2021) and
effective on January 1, 2022, as follows:
PART 702--CAPITAL ADEQUACY
0
1. The authority citation for part 702 continues to read as follows:
Authority: 12 U.S.C. 1766(a), 1790d.
0
2. In Sec. 702.2 revise the definitions of ``Grandfathered Secondary
Capital'' and ``Regulatory Capital'' to read as follows:
Sec. 702.2 Definitions.
* * * * *
Grandfathered Secondary Capital means any secondary capital issued
under Sec. 701.34 of this chapter, before January 1, 2022 or, in the
case of a federally insured, state-chartered credit union, with Sec.
741.204(c) of this chapter, before January 1, 2022. (12 CFR 701.34 was
recodified as Sec. 702.414 as of January 1, 2022). This term also
includes issuances of secondary capital to the U.S. Government or any
of its subdivisions, under applications approved before January 1,
2022, pursuant to Sec. 701.34 or Sec. 741.204(c) of this chapter,
irrespective of the date of issuance.
* * * * *
Regulatory Capital means:
(1) With respect to an Issuing Credit Union that is a LICU and not
a complex credit union, the aggregate outstanding principal amount of
Subordinated Debt and, until the later of 20 years from the date of
issuance or January 1, 2042, Grandfathered Secondary Capital that is
included in the credit union's net worth ratio;
(2) With respect to an Issuing Credit Union that is a complex
credit union and not a LICU, the aggregate outstanding principal amount
of Subordinated Debt that is included in the credit union's RBC Ratio;
(3) With respect to an Issuing Credit Union that is both a LICU and
a Complex Credit Union, the aggregate outstanding principal amount of
Subordinated Debt and, until the later of 20 years from the date of
issuance or January June 1, 2042, Grandfathered Secondary Capital that
is included in its net worth ratio and in its RBC Ratio; and
(4) With respect to a new credit union, the aggregate outstanding
principal amount of Subordinated Debt and, until the later of 20 years
from the date of issuance or January 1, 2042, Grandfathered Secondary
Capital that is considered pursuant to Sec. 702.207.
* * * * *
0
3. Revise Sec. 702.401 to read as follows:
Sec. 702.401 Purpose and scope.
(a) Subordinated Debt. This subpart sets forth the requirements
applicable to all Subordinated Debt issued by a federally insured,
natural person credit union, including the NCUA's review and approval
of that credit union's application to issue or prepay Subordinated
Debt. This subpart shall apply to a federally insured, state-chartered
credit union only to the extent that such federally insured, state-
chartered credit union is permitted by applicable state law to issue
debt instruments of the type described in this subpart. To the extent
that such state law is more restrictive than this subpart with respect
to the issuance of such debt instruments, that state law shall apply.
Except as provided in the next sentence, any secondary capital, as that
term is used in the Federal Credit Union Act, issued after January 1,
2022, is Subordinated Debt and subject to the requirements of this
subpart. Issuances of secondary capital, as that term is used in the
Federal Credit Union Act, to the U.S. Government or any of its
subdivisions, under applications approved before January 1, 2022,
pursuant to Sec. 701.34 or Sec. 741.204(c) of this chapter, are not
subject to the requirements applicable to Subordinated Debt, discussed
elsewhere in this subpart, irrespective of the date of issuance.
(b) Grandfathered Secondary Capital. Any secondary capital defined
as ``Grandfathered Secondary Capital,'' under Sec. 702.402, is
governed by Sec. 702.414. Grandfathered Secondary Capital will no
longer be treated as Regulatory Capital as of the later of 20 years
from the date of issuance or January 1, 2042.
0
4. In Sec. 702.402 revise the definition for ``Grandfathered Secondary
Capital'' to read as follows:
Sec. 702.402 Definitions.
* * * * *
Grandfathered Secondary Capital means any secondary capital issued
under Sec. 701.34 of this chapter before January 1, 2022, or, in the
case of a federally insured, state-chartered credit union, with Sec.
741.204(c) of this chapter, before January 1, 2022. (12 CFR 701.34 was
recodified as Sec. 702.414 as of January 1, 2022). This term also
includes issuances of secondary capital to the U.S. Government or any
of its subdivisions, under applications approved before January 1,
2022, pursuant to Sec. 701.34 or Sec. 741.204(c) of this chapter,
irrespective of the date of issuance.
* * * * *
0
5. In Sec. 702.414 revise the introductory paragraph and paragraph
(a)(2) to read as follows:
Sec. 702.414 Regulations governing Grandfathered Secondary Capital.
This section recodifies the requirements from 12 CFR 701.34(b),
(c), and (d) that were in effect as of December 31, 2021, with minor
modifications. The terminology used in this section is specific to this
section. Except as provided in the next sentence, all secondary capital
issued under Sec. 701.34 of this chapter before January 1, 2022, or,
in the case of a federally insured, state-chartered credit union, Sec.
741.204(c) of this chapter, that is referred to elsewhere in this
subpart as ``Grandfathered Secondary Capital,'' is subject to the
requirements set forth in this section. Issuances of secondary capital
to the U.S. Government or any of its subdivisions, under applications
approved before January 1, 2022, pursuant to Sec. 701.34 or Sec.
741.204(c) of this chapter, are also considered ``Grandfathered
Secondary Capital'' irrespective of the date of issuance.
* * * * *
(a) * * *
(1) * * *
(2) Issuances not completed before January 1, 2022. Except as
provided in the next sentence, any issuances of secondary capital not
completed by January 1, 2022, are, as of January 1, 2022, subject to
the requirements applicable to Subordinated Debt discussed elsewhere in
this subpart. Issuances of secondary capital to the U.S. Government or
any of its subdivisions, under applications approved before January 1,
2022, pursuant to Sec. Sec. 701.34 or 741.204(c) of this chapter, are
not subject to the requirements applicable to Subordinated Debt,
discussed elsewhere in this subpart, irrespective of the date of
issuance.
* * * * *
PART 741--REQUIREMENTS FOR INSURANCE
0
6. The authority citation for part 741 continues to read as follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31
U.S.C. 3717.
0
7. Amend Sec. 741.204 by revising paragraph (c) to read as follows:
[[Page 72810]]
Sec. 741.204 Maximum public unit and nonmember accounts, and low-
income designation.
* * * * *
(c) Follow the requirements of Sec. 702.414 of this chapter for
any Grandfathered Secondary Capital (as defined in part 702 of this
chapter).
[FR Doc. 2021-27643 Filed 12-22-21; 8:45 am]
BILLING CODE 7535-01-P
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</html>Indexed from Federal Register on December 23, 2021.
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