Subordinated Debt, 53567-53570 [2021-21055]
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53567
Proposed Rules
Federal Register
Vol. 86, No. 185
Tuesday, September 28, 2021
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 702 and 741
[NCUA 2021–0127]
RIN 3133–AF38
Subordinated Debt
National Credit Union
Administration (NCUA).
ACTION: Proposed rule.
AGENCY:
The NCUA Board (Board) is
proposing to amend the Subordinated
Debt rule, which the Board finalized in
December 2020 with an effective date of
January 1, 2022. The Board proposes to
amend 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
an application approved before January
1, 2022, irrespective of the date of
issuance. The proposed change would
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 also
proposes to extend the expiration of
regulatory capital treatment for these
issuances to the later of 20 years from
the date of issuance or January 1, 2042.
DATES: Comments must be received on
or before October 28, 2021.
ADDRESSES: You may submit written
comments, identified by RIN 3133–
AF38, by any of the following methods
(Please send comments by one method
only):
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments
on Docket NCUA 2021–0127.
• Fax: (703) 518–6319. Include
‘‘[Your Name]—Comments on Proposed
SUMMARY:
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Rule: Subordinated Debt 2021’’ in the
transmittal.
• Mail: Address to Melane ConyersAusbrooks, Secretary of the Board,
National Credit Union Administration,
1775 Duke Street, Alexandria, Virginia
22314–3428.
• Hand Delivery/Courier: Same as
mail address.
Public Inspection: You may view all
public comments on the Federal
eRulemaking Portal at https://
www.regulations.gov, as submitted,
except for those we cannot post for
technical reasons. The NCUA will not
edit or remove any identifying or
contact information from the public
comments submitted. Due to social
distancing measures in effect, the usual
opportunity to inspect paper copies of
comments in the NCUA’s law library is
not currently available. After social
distancing measures are relaxed, visitors
may make an appointment to review
paper copies by calling (703) 518–6540
or emailing OGCMail@ncua.gov.
FOR FURTHER INFORMATION CONTACT:
Justin M. Anderson, Senior Staff
Attorney, Office of General Counsel,
1775 Duke Street, Alexandria, VA
22314–3428. Justin Anderson also can
be reached at (703) 518–6540.
SUPPLEMENTARY INFORMATION:
I. Background
A. Subordinated Debt Rule
At its December 2020 meeting, the
Board issued a final Subordinated Debt
rule (the final rule) permitting LICUs,
Complex Credit Unions, and New Credit
Unions to issue Subordinated Debt for
purposes of Regulatory Capital
treatment.1 Relevant to this proposal,
the final 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 final rule).2 The
grandfathering provision of the final
rule allowed LICUs with grandfathered
secondary capital to continue to be
subject to the requirements of
§ 701.34(b), (c), and (d) (recodified in
the final rule as § 702.414), rather than
the requirements of the final rule.3 The
final 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 final rule.4
This provision would nullify any
approved secondary capital application
if the associated issuance was not
completed before January 1, 2022. Any
LICU in this situation would be required
to reapply under the final rule if such
LICU sought to proceed with its planned
secondary capital issuance.
B. Emergency Capital Investment
Program
Subsequent to the issuance of the
final rule, Congress passed the
Consolidated Appropriations Act,
2021.5 The CAA, among other things,
created the ECIP. Under 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
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 has subsequently extended
this deadline multiple times, with the
most recent deadline, as of the date of
this proposal, being September 1, 2021.
As of September 17, 2021, 44 LICUs
have received approval from the NCUA
to issue secondary capital under the
4 Id.
at 11083.
5 Consolidated
1 86
FR 11060 (Feb. 23, 2021).
2 Id. at 11074.
3 Id. at 11074.
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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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ECIP for an aggregate amount of
approximately $1.9 billion.
II. Proposed Rule
The changes proposed in this rule are
narrowly tailored to address a specific
situation with funding of approved
secondary capital applications.
Therefore, the Board notes that it is not
considering any other changes to the
final Subordinated Debt rule. Comments
outside the scope of the changes
discussed herein will be treated as such
for the purposes of any final rule the
Board may issue. In light of this targeted
scope and the prior public comment
period on the Subordinated Debt rule,
the Board finds that a 30-day comment
period will provide an adequate
opportunity for public input.8
In the event approved LICU 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 for regulatory
capital treatment under the
Subordinated Debt rule. As this scenario
would impose an unnecessary burden
on these LICUs, the Board is proposing
to amend the Subordinated Debt rule to
permit funding of secondary capital
approved under the current 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 § 701.34(b), (c) and (d)
of the NCUA’s regulations, (recodified
in the final rule as § 702.414). The Board
notes that the proposed changes in this
rule are 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
§ 701.34 of the NCUA’s regulations, for
federal credit unions, or § 741.203 of the
NCUA’s regulations, for federally
insured, state-chartered credit unions.9
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
8 See NCUA Interpretive Ruling and Policy
Statement (IRPS) 87–2, as amended by IRPS 03–2
and IRPS 15–1. 80 FR 57512 (Sept. 24, 2015),
available at https://www.ncua.gov/files/
publications/irps/IRPS1987-2.pdf.
9 12 CFR 701.34 and 741.203.
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requirements of the final Subordinated
Debt rule.
The Board believes it is appropriate to
narrowly tailor this rule, using the
above criteria, for the following reasons.
First, the issuances targeted by this rule
were applied for and approved under
the requirements of the current
secondary capital rule. The Board
included the issuance cutoff date in the
Subordinated Debt rule to ensure future
issuances were done in accordance with
the more robust requirements in that
rule, particularly in the area of
disclosures and investor protections. As
the issuances that are the subject of this
rule are to the U.S. Government, the
Board believes that the sharing of nonpublic, confidential supervisory
information between the NCUA and the
U.S. Government investor is sufficient
to warrant a limited exception. The
sharing of non-public, confidential
supervisory information also separates
the issuances subject to this proposed
rule and issuances to non-U.S.
Government investors. As such, the
Board is not proposing to apply the
exception in this proposed rule to
secondary capital issuances to entities
or persons other than the U.S.
Government. Further, the Board notes
that, as of September 7, 2021, there were
four approved secondary capital
applications not related to U.S.
Government programs that have not
been funded.
While the Board is permitting this
limited exception for issuances to the
U.S. Government, the Board continues
to believe that the requirements of the
Subordinated Debt rule, including the
issuance of an Offering Document,
should apply to all future issuances,
regardless of the identity of the investor.
The Board notes that information
sharing between government agencies is
not a substitute for executing an offering
document. However, given the nonrecurring nature of the transition from
the current secondary capital
requirements to the new Subordinated
Debt requirements, the Board is willing
to rely on information sharing in this
instance.
The Board is proposing the above
criteria to limit the scope to address
potential funding timelines under U.S.
Government programs that extend
beyond the end of 2021. As such, if
funding is completed by the end of 2021
for these limited number of
applications, there may be no need to
finalize this proposed rule. However,
out of an abundance of caution, the
Board believes it is prudent to be
prepared to act should funding delays
continue beyond the end of 2021.
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The Board reiterates that any LICU
that would qualify for the exception
granted by this proposed rule must be
operating under a secondary capital
plan approved before January 1, 2022
under either §§ 701.34 or 741.204 of the
NCUA’s regulations. Operating under an
approved secondary capital plan means
that a LICU may only conduct
secondary capital issuances in
accordance with the terms and
conditions included in the LICU’s
approved secondary capital plan.
Further, any LICU that receives an
investment from the U.S. Government
that is less than the amount approved
under its secondary capital application
with the NCUA would be limited to
only that lesser investment and would
not be permitted to use the proposed
exception to conduct subsequent
issuances. For example, if a LICU was
approved to issue $100 million of
secondary capital by the NCUA, but
under the U.S. Government program
was only granted a $60 million
investment, the LICU would not be
permitted to issue the remaining $40
million of approved secondary capital to
another investor or under another U.S.
Government program. Further, if a LICU
receives a lesser investment amount, the
NCUA reserves the right to revisit the
LICU’s approved plan to verify that the
LICU continues to operate in accordance
with that plan.
Finally, the Board is proposing 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 rule).
As this proposal would allow limited
issuances of Grandfathered Secondary
Capital beyond January 1, 2022, the
Board is proposing to allow such
secondary capital to count as regulatory
capital for up to 20 years from the date
of issuance. The Board notes that this
proposed amendment would provide
equitable treatment for all issuances of
Grandfathered Secondary Capital.
Finally, the Board notes that this
proposed change does not change the
Board’s rationale, as articulated in the
proposed and final Subordinated Debt
rules, for imposing a 20-year cutoff for
regulatory capital treatment.
This change also would not permit
LICUs to issue secondary capital with
terms longer than 20 years. The Board
was clear in both the proposed and final
Subordinated Debt rules that the
maximum 20-year maturity was
necessary to help ensure Subordinated
Debt was not considered equity, which
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is an impermissible issuance for federal
credit unions.10 To permit longer term
issuances of secondary capital would be
counter to the Board’s concerns and
reasons articulated in the
aforementioned rules.
III. Regulatory Procedures
A. 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
proposed rule extends the time for
certain issuances of secondary capital
and the corresponding Regulatory
Capital treatment of such issuances. As
such, this rule would not require any
information collection as defined by the
Paperwork Reduction Act of 1995.
B. 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.
This proposed rule does not have
substantial direct effects on the states,
on the relationship between the
National Government and the states, or
on the distribution of power and
responsibilities among the various
levels of Government. The NCUA has
therefore determined that this proposed
rule does not constitute a policy that has
federalism implications for purposes of
the Executive Order.
C. 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 § 654 of the
Treasury and General Government
Appropriations Act, 1999, Public Law
105–277, 112 Stat. 2681 (1998).
D. Regulatory Flexibility Act
The Regulatory Flexibility Act 11
requires the NCUA to prepare an
analysis to describe any significant
economic impact a regulation may have
on a substantial number of small entities
(primarily those under $100 million in
10 See 86 FR 11071 (Feb. 23, 2021) and 85 FR
13986, 14000 (Mar. 10, 2020).
11 5 U.S.C. 601 et seq.
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assets).12 This proposed rule would
affect a small number of LICUs with
approved secondary capital applications
for issuances to the U.S. Government or
its subdivisions. This rule extends the
deadline for such credit unions to
complete their issuance of secondary
capital. Accordingly, the NCUA certifies
that this proposed rule would not have
a significant economic impact on a
substantial number of small credit
unions.
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.
By the NCUA Board on September 23,
2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the
preamble, NCUA proposes to amend 12
CFR parts 702 and 741, as amended by
86 FR 11060 (Feb. 23, 2021) and
scheduled to become effective on
January 1, 2022, as follows:
PART 702—CAPITAL ADEQUACY
1. The authority citation for part 702
continues to read as follows:
■
Authority: 12 U.S.C. 1766(a), 1790d.
2. In § 702.2 revise the definitions for
‘‘Grandfathered Secondary Capital’’ and
‘‘Regulatory Capital’’ to read as follows:
■
§ 702.2
Definitions.
*
*
*
*
*
Grandfathered Secondary Capital
means any secondary capital issued
under § 701.34 of this chapter, before
January 1, 2022 or, in the case of a
federally insured, state-chartered credit
union, with § 741.204(c) of this chapter,
before January 1, 2022. (12 CFR 701.34
was recodified as § 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 §§ 701.34 or 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
12 Id.
PO 00000
at 603(a).
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53569
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 § 702.207.
*
*
*
*
*
■ 3. Revise § 702.401 to read as follows:
§ 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, statechartered credit union only to the extent
that such federally insured, statechartered 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 §§ 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.
(b) Grandfathered Secondary Capital.
Any secondary capital defined as
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‘‘Grandfathered Secondary Capital,’’
under § 702.402 of this part, is governed
by § 702.414 of this part. 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.
■ 4. In § 702.402 revise the definition
for ‘‘Grandfathered Secondary Capital’’
to read as follows:
§ 702.402
Definitions.
*
*
*
*
*
Grandfathered Secondary Capital
means any secondary capital issued
under § 701.34 of this chapter before
January 1, 2022, or, in the case of a
federally insured, state-chartered credit
union, with § 741.204(c) of this chapter,
before January 1, 2022. (12 CFR 701.34
was recodified as § 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 §§ 701.34 or 741.204(c) of
this chapter, irrespective of the date of
issuance.
*
*
*
*
*
■ 5. In § 702.414 revise the introductory
text and paragraph (a)(2) to read as
follows:
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
§ 701.34 of this chapter before January 1,
2022, or, in the case of a federally
insured, state-chartered credit union,
§ 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 §§ 701.34 or 741.204(c) of
this chapter, are also considered
‘‘Grandfathered Secondary Capital’’
irrespective of the date of issuance.
(a) * * *
(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
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Jkt 253001
PART 741—REQUIREMENTS FOR
INSURANCE
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.
7. Amend § 741.204 by revising
paragraph (c) to read as follows:
■
§ 741.204 Maximum public unit and
nonmember accounts, and low-income
designation.
*
*
*
*
*
(c) Follow the requirements of
§ 702.414 of this chapter for any
Grandfathered Secondary Capital (as
defined in part 702 of this chapter).
[FR Doc. 2021–21055 Filed 9–27–21; 8:45 am]
BILLING CODE 7535–01–P
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
§ 702.414 Regulations governing
Grandfathered Secondary Capital.
VerDate Sep<11>2014
U.S. Government or any of its
subdivisions, under applications
approved before January 1, 2022,
pursuant to § 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.
*
*
*
*
*
24 CFR Parts 5 and 200
[Docket No. FR–6160–N–02]
Notice of Continuation of
Demonstration To Assess the National
Standards for the Physical Inspection
of Real Estate and Associated
Protocols
Office of the Assistant
Secretary for Housing; Office of the
Assistant Secretary for Public and
Indian Housing, U.S. Department of
Housing and Urban Development.
ACTION: Demonstration continuation.
AGENCY:
Through this notification,
HUD announces the continuation of the
Demonstration to Assess the National
Standards for the Physical Inspection of
Real Estate and Associated Protocols
through April 30, 2023. This
demonstration allows HUD to test the
NSPIRE standards and protocols as the
means for assessing the physical
conditions of HUD-assisted and HUDinsured housing. The continuation
provides the authority to further
evaluate and refine the future state of
HUD’s physical inspection model.
DATES: The demonstration continuation
is effective September 28, 2021.
SUMMARY:
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FOR FURTHER INFORMATION CONTACT:
Timothy Weese, NSPIRE Program
Manager, Office of Public and Indian
Housing, Department of Housing and
Urban Development, 550 12th Street
SW, Suite 100, Washington, DC 20410–
4000, telephone number 202–475–8811
(this is not a toll-free number) or via
email to NSPIRE@hud.gov. Persons with
hearing or speech impairments may
contact the numbers above via TTY by
calling the Federal Relay Service at 800–
877–8339 (this is a toll-free number).
SUPPLEMENTARY INFORMATION: On August
21, 2019, the U.S. Department of
Housing and Urban Development
published a document implementing
the ‘‘Demonstration To Assess the
National Standards for the Physical
Inspection of Real Estate and Associated
Protocols.’’ (‘‘the 2019 document’’).1
Through this demonstration, HUD is
collecting, processing, and evaluating
physical inspection data and
information, and is improving and
refining the NSPIRE model. The NSPIRE
model will revise the way that HUDassisted housing is inspected and
evaluated to reduce regulatory burden
and improve HUD oversight through a
unified assessment of housing quality
and a prioritization of resident health
and safety.
HUD has decided to extend this
demonstration to assess the
improvements and alignment of the
inspection protocol. This decision
furthers the direction contained in the
Joint Explanatory Statement
accompanying the Consolidated
Appropriations Act of 2016, Public Law
114–113, approved December 18, 2015;
the statutory requirements detailed in
the Economic Growth and Recovery,
Regulatory Relief, and Consumer
Protection Act of 2018, Public Law 115–
174; 2 and the proposed guidance the
Department has outlined in the
Economic Growth, Regulatory Relief,
and Consumer Protection Act:
Implementation of National Standards
for the Physical Inspection of Real
Estate proposed rule.3 All participant
1 Originally announced in the Notice of
Demonstration To Assess the National Standards
for the Physical Inspection of Real Estate and
Associated Protocols, 84 FR 43536 (August 21,
2019) https://www.federalregister.gov/documents/
2019/08/21/2019-17910/notice-of-demonstration-toassess-the-national-standards-for-the-physicalinspection-of-real-estate.
2 The text of the Economic Growth Act, along
with a summary prepared by the Congressional
Research Service, can be found at https://
www.congress.gov/bill/115th-congress/senate-bill/
2155/text.
3 See Economic Growth Regulatory Relief and
Consumer Protection Act: Implementation of
National Standards for the Physical Inspection of
Real Estate (NSPIRE), 86 FR 2582 (January 13, 2021)
https://www.federalregister.gov/documents/2021/
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]]>Agencies
[Federal Register Volume 86, Number 185 (Tuesday, September 28, 2021)]
[Proposed Rules]
[Pages 53567-53570]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21055]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 /
Proposed Rules
[[Page 53567]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 702 and 741
[NCUA 2021-0127]
RIN 3133-AF38
Subordinated Debt
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
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SUMMARY: The NCUA Board (Board) is proposing to amend the Subordinated
Debt rule, which the Board finalized in December 2020 with an effective
date of January 1, 2022. The Board proposes to amend 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 an application approved before January 1, 2022,
irrespective of the date of issuance. The proposed change would 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
also proposes to extend the expiration of regulatory capital treatment
for these issuances to the later of 20 years from the date of issuance
or January 1, 2042.
DATES: Comments must be received on or before October 28, 2021.
ADDRESSES: You may submit written comments, identified by RIN 3133-
AF38, by any of the following methods (Please send comments by one
method only):
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments on Docket NCUA 2021-
0127.
Fax: (703) 518-6319. Include ``[Your Name]--Comments on
Proposed Rule: Subordinated Debt 2021'' in the transmittal.
Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
Public Inspection: You may view all public comments on the Federal
eRulemaking Portal at https://www.regulations.gov, as submitted, except
for those we cannot post for technical reasons. The NCUA will not edit
or remove any identifying or contact information from the public
comments submitted. Due to social distancing measures in effect, the
usual opportunity to inspect paper copies of comments in the NCUA's law
library is not currently available. After social distancing measures
are relaxed, visitors may make an appointment to review paper copies by
calling (703) 518-6540 or emailing [email protected].
FOR FURTHER INFORMATION CONTACT: Justin M. Anderson, Senior Staff
Attorney, Office of General Counsel, 1775 Duke Street, Alexandria, VA
22314-3428. Justin Anderson also can be reached at (703) 518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
A. Subordinated Debt Rule
At its December 2020 meeting, the Board issued a final Subordinated
Debt rule (the final rule) permitting LICUs, Complex Credit Unions, and
New Credit Unions to issue Subordinated Debt for purposes of Regulatory
Capital treatment.\1\ Relevant to this proposal, the final 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 final
rule).\2\ The grandfathering provision of the final rule allowed LICUs
with grandfathered secondary capital to continue to be subject to the
requirements of Sec. 701.34(b), (c), and (d) (recodified in the final
rule as Sec. 702.414), rather than the requirements of the final
rule.\3\ The final 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 final rule.\4\ This provision would nullify
any approved secondary capital application if the associated issuance
was not completed before January 1, 2022. Any LICU in this situation
would be required to reapply under the final rule if such LICU sought
to proceed with its planned secondary capital issuance.
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\1\ 86 FR 11060 (Feb. 23, 2021).
\2\ Id. at 11074.
\3\ Id. at 11074.
\4\ Id. at 11083.
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B. Emergency Capital Investment Program
Subsequent to the issuance of the final rule, Congress passed the
Consolidated Appropriations Act, 2021.\5\ The CAA, among other things,
created the ECIP. Under 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 has subsequently
extended this deadline multiple times, with the most recent deadline,
as of the date of this proposal, being September 1, 2021. As of
September 17, 2021, 44 LICUs have received approval from the NCUA to
issue secondary capital under the
[[Page 53568]]
ECIP for an aggregate amount of approximately $1.9 billion.
II. Proposed Rule
The changes proposed in this rule are narrowly tailored to address
a specific situation with funding of approved secondary capital
applications. Therefore, the Board notes that it is not considering any
other changes to the final Subordinated Debt rule. Comments outside the
scope of the changes discussed herein will be treated as such for the
purposes of any final rule the Board may issue. In light of this
targeted scope and the prior public comment period on the Subordinated
Debt rule, the Board finds that a 30-day comment period will provide an
adequate opportunity for public input.\8\
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\8\ See NCUA Interpretive Ruling and Policy Statement (IRPS) 87-
2, as amended by IRPS 03-2 and IRPS 15-1. 80 FR 57512 (Sept. 24,
2015), available at https://www.ncua.gov/files/publications/irps/IRPS1987-2.pdf.
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In the event approved LICU 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 for regulatory capital treatment
under the Subordinated Debt rule. As this scenario would impose an
unnecessary burden on these LICUs, the Board is proposing to amend the
Subordinated Debt rule to permit funding of secondary capital approved
under the current 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 Sec. 701.34(b), (c) and (d) of the
NCUA's regulations, (recodified in the final rule as Sec. 702.414).
The Board notes that the proposed changes in this rule are 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.\9\
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\9\ 12 CFR 701.34 and 741.203.
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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 believes it is appropriate to narrowly tailor this rule,
using the above criteria, for the following reasons. First, the
issuances targeted by this rule were applied for and approved under the
requirements of the current secondary capital rule. The Board included
the issuance cutoff date in the Subordinated Debt rule to ensure future
issuances were done in accordance with the more robust requirements in
that rule, particularly in the area of disclosures and investor
protections. As the issuances that are the subject of this rule are to
the U.S. Government, the Board believes that the sharing of non-public,
confidential supervisory information between the NCUA and the U.S.
Government investor is sufficient to warrant a limited exception. The
sharing of non-public, confidential supervisory information also
separates the issuances subject to this proposed rule and issuances to
non-U.S. Government investors. As such, the Board is not proposing to
apply the exception in this proposed rule to secondary capital
issuances to entities or persons other than the U.S. Government.
Further, the Board notes that, as of September 7, 2021, there were four
approved secondary capital applications not related to U.S. Government
programs that have not been funded.
While the Board is permitting this limited exception for issuances
to the U.S. Government, the Board continues to believe that the
requirements of the Subordinated Debt rule, including the issuance of
an Offering Document, should apply to all future issuances, regardless
of the identity of the investor. The Board notes that information
sharing between government agencies is not a substitute for executing
an offering document. However, given the non-recurring nature of the
transition from the current secondary capital requirements to the new
Subordinated Debt requirements, the Board is willing to rely on
information sharing in this instance.
The Board is proposing the above criteria to limit the scope to
address potential funding timelines under U.S. Government programs that
extend beyond the end of 2021. As such, if funding is completed by the
end of 2021 for these limited number of applications, there may be no
need to finalize this proposed rule. However, out of an abundance of
caution, the Board believes it is prudent to be prepared to act should
funding delays continue beyond the end of 2021.
The Board reiterates that any LICU that would qualify for the
exception granted by this proposed rule must be operating under a
secondary capital plan approved before January 1, 2022 under either
Sec. Sec. 701.34 or 741.204 of the NCUA's regulations. Operating under
an approved secondary capital plan means that a LICU may only conduct
secondary capital issuances in accordance with the terms and conditions
included in the LICU's approved secondary capital plan. Further, any
LICU that receives an investment from the U.S. Government that is less
than the amount approved under its secondary capital application with
the NCUA would be limited to only that lesser investment and would not
be permitted to use the proposed exception to conduct subsequent
issuances. For example, if a LICU was approved to issue $100 million of
secondary capital by the NCUA, but under the U.S. Government program
was only granted a $60 million investment, the LICU would not be
permitted to issue the remaining $40 million of approved secondary
capital to another investor or under another U.S. Government program.
Further, if a LICU receives a lesser investment amount, the NCUA
reserves the right to revisit the LICU's approved plan to verify that
the LICU continues to operate in accordance with that plan.
Finally, the Board is proposing 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
rule). As this proposal would allow limited issuances of Grandfathered
Secondary Capital beyond January 1, 2022, the Board is proposing to
allow such secondary capital to count as regulatory capital for up to
20 years from the date of issuance. The Board notes that this proposed
amendment would provide equitable treatment for all issuances of
Grandfathered Secondary Capital. Finally, the Board notes that this
proposed change does not change the Board's rationale, as articulated
in the proposed and final Subordinated Debt rules, for imposing a 20-
year cutoff for regulatory capital treatment.
This change also would not permit LICUs to issue secondary capital
with terms longer than 20 years. The Board was clear in both the
proposed and final Subordinated Debt rules that the maximum 20-year
maturity was necessary to help ensure Subordinated Debt was not
considered equity, which
[[Page 53569]]
is an impermissible issuance for federal credit unions.\10\ To permit
longer term issuances of secondary capital would be counter to the
Board's concerns and reasons articulated in the aforementioned rules.
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\10\ See 86 FR 11071 (Feb. 23, 2021) and 85 FR 13986, 14000
(Mar. 10, 2020).
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III. Regulatory Procedures
A. 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 proposed rule extends the
time for certain issuances of secondary capital and the corresponding
Regulatory Capital treatment of such issuances. As such, this rule
would not require any information collection as defined by the
Paperwork Reduction Act of 1995.
B. 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.
This proposed rule does not have substantial direct effects on the
states, on the relationship between the National Government and the
states, or on the distribution of power and responsibilities among the
various levels of Government. The NCUA has therefore determined that
this proposed rule does not constitute a policy that has federalism
implications for purposes of the Executive Order.
C. 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).
D. Regulatory Flexibility Act
The Regulatory Flexibility Act \11\ requires the NCUA to prepare an
analysis to describe any significant economic impact a regulation may
have on a substantial number of small entities (primarily those under
$100 million in assets).\12\ This proposed rule would affect a small
number of LICUs with approved secondary capital applications for
issuances to the U.S. Government or its subdivisions. This rule extends
the deadline for such credit unions to complete their issuance of
secondary capital. Accordingly, the NCUA certifies that this proposed
rule would not have a significant economic impact on a substantial
number of small credit unions.
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\11\ 5 U.S.C. 601 et seq.
\12\ Id. at 603(a).
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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.
By the NCUA Board on September 23, 2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the preamble, NCUA proposes to amend
12 CFR parts 702 and 741, as amended by 86 FR 11060 (Feb. 23, 2021) and
scheduled to become 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 for ``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. Sec. 701.34 or 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. 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.
(b) Grandfathered Secondary Capital. Any secondary capital defined
as
[[Page 53570]]
``Grandfathered Secondary Capital,'' under Sec. 702.402 of this part,
is governed by Sec. 702.414 of this part. 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. Sec. 701.34 or 741.204(c) of this chapter,
irrespective of the date of issuance.
* * * * *
0
5. In Sec. 702.414 revise the introductory text 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. Sec. 701.34 or
741.204(c) of this chapter, are also considered ``Grandfathered
Secondary Capital'' irrespective of the date of issuance.
(a) * * *
(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. 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:
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. 2021-21055 Filed 9-27-21; 8:45 am]
BILLING CODE 7535-01-P
