Financial Institutions Advisory: NCUA Issues Proposed Amendment to Subordinated Debt Rule
DOWNLOAD PDFClick “Subscribe Now” to get attorney insights on the latest developments in a range of services and industries.
On Wednesday, October 5, 2022, the National Credit Union Administration (“NCUA”) issued a proposed rule (“Proposed Rule”) to amend its Subordinated Debt Rule (the “Sub Debt Rule”), which they previously published in December 2020 and which became effective on January 1, 2022.[1] Under the Sub Debt Rule, credit unions designated as low-income credit unions (“LICUs”), complex credit unions, and new credit unions are permitted to issue Subordinated Debt for purposes of regulatory capital treatment. The NCUA must receive comments on the Proposed Rule before December 5, 2022.
The NCUA is proposing two changes to the Sub Debt Rule regarding (i) Grandfathered Secondary Capital (“GSC”), as defined under the Sub Debt Rule, and (ii) the maturity of subordinated debt notes (”Notes”). First, the Proposed Rule would extend the regulatory capital treatment of GSC to the later of 30 years from the date of issuance, or January 1, 2052. This change is meant to align the regulatory capital treatment with the maximum permissible maturity for secondary capital issued under the Emergency Capital Investment Program (“ECIP”), and would align the regulatory capital treatment across GSC.
Second, the Proposed Rule would replace the maximum maturity of Notes with a requirement that any credit union seeking to issue Notes with maturities longer than 20 years must demonstrate how such Notes would continue to be considered “debt” under the NCUA regulations. Since January 1, 2022, the maturity of Notes has been restricted to a minimum of five years and a maximum of 20 years. In alignment with this maximum maturity, Regulatory capital treatment is terminated after 20 years, beginning on the date of issuance or January 1, 2022.
The NCUA is also making four minor modifications to the Sub Debt Rule. The NCUA is proposing to:
- Amend the definition of “Qualified Counsel” to clarify that such person(s) is not required to be licensed to practice law in every jurisdiction that may relate to an issuance;
- Remove the “statement of cash flow” from the Pro Forma Financial Statements requirement in the Sub Debt Rule and replace it with a requirement for “cash flow projections;”
- Revise the filing requirements and inspection of documents provisions of the Sub Debt Rule to align with current NCUA procedures; and
- Remove a parenthetical reference related to GSC that no longer counts as Regulatory Capital in order to align with recent changes made to the Call Report.
Financial Institutions Practice
Dickinson Wright PLLC has a dedicated team of financial services attorneys with deep experience handling complex transactional, regulatory, and litigation matters. Our attorneys regularly advise clients on M&A, strategic transactions, third-party engagement, enforcement matters, and regulatory compliance. For more information or for questions related to this Financial Services Advisory, please contact the author(s), your Dickinson Wright attorney, or visit our Banking & Finance Group.
Key Financial Institution Team
Chicago |
|
Austin |
|
Ann Arbor |
|
Chicago |
|
Detroit |
|
Chicago |
|
Detroit |
|
Detroit |
|
Detroit |
|
Phoenix, AnnArbor |
[1] See 86 Fed. Reg. 11060 (February 23, 2021).
Related Practices
Recent Insights
- June 6, 2024 In the News Dickinson Wright Receives Top Rankings in 2024 Chambers USA Guide; 51 Attorneys Recognized as Leaders in their Fields
- April 25, 2024 In the News Peter Westcott Joins Dickinson Wright Toronto Office
- July 28, 2023 Video Minutes on the Matter with Joseph Silvia: Unauthorized Electronic Funds Transfers
- June 1, 2023 In the News Dickinson Wright Receives Top Rankings in 2023 Chambers USA Guide; 43 Attorneys Recognized as Leaders in their Fields
- March 2023 Industry Alerts How to Screw up a Good Thing – What the Financial Industry Should Consider in the Wake of Credit Suisse
- March 07, 2023 Industry Alerts Bank Warning: Don’t Get Charged Millions for Processing Out-of-State Garnishments Improperly
- February 23, 2023 Industry Alerts Federal Government to Create Massive New Database
- October 18, 2022 Industry Alerts Financial Institutions Advisory: FinCEN Issues Final Rule on Beneficial Ownership Reporting
- September 23, 2022 In the News Seven Dickinson Wright Attorneys Named 2022 Texas Super Lawyers