Subordinated Debt, 72807-72810 [2021-27643]
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 702 and 741
RIN 3133–AE98
Subordinated Debt
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
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:
SUMMARY:
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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
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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
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.
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 lowincome 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
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.
4 Id. at 11083.
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.
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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 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
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
§ 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.
7 12
8 86
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U.S.C. 4703a(a)(2).
FR 53567 (Sept. 28, 2021).
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
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
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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
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
9 Id.
at 53568.
10 Id.
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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.
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.
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
11 5
U.S.C. 553(d).
12 Id. 553(d)(1).
13 Id. 801–804.
14 Id. 551.
15 Id. 601 et seq.
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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
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 § 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.
16 NCUA Interpretive Ruling and Policy
Statement 15–1. 80 FR 57512 (Sept. 24, 2015).
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
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
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 of
‘‘Grandfathered Secondary Capital’’ and
‘‘Regulatory Capital’’ to read as follows:
■
§ 702.2
Definitions.
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*
*
*
*
*
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
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,
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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
‘‘Grandfathered Secondary Capital,’’
under § 702.402, is governed by
§ 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.
■ 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
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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
paragraph and paragraph (a)(2) to read
as follows:
■
§ 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
§ 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) * * *
(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 §§ 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
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:
■
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§ 741.204 Maximum public unit and
nonmember accounts, and low-income
designation.
V. Regulatory Procedures
*
A. Background
While the Act provides specific,
statutory investment powers for FCUs,1
the Board has adopted regulatory
prohibitions against certain investments
and investment activities on the basis of
safety and soundness concerns,
including the purchase of mortgage
servicing rights (MSRs) as an
investment.2 In December 2020, by a
vote of 2–1, the Board approved a notice
of proposed rulemaking (NPR) 3 to
amend the agency’s Investment and
Deposit Activities Rule (Investment
Rule), 12 CFR part 703, to explicitly
permit FCUs to purchase MSRs from
other federally insured credit unions
(FICUs) based on express statutory
authority that permits an FCU ‘‘to sell
all or a part of its assets to another credit
union [and] to purchase all or part of the
assets of another credit union. . .subject
to regulations of the Board.’’ 4 The
proposed regulatory text provided the
following requirements for this
investment authority:
I. Introduction
*
*
*
*
(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. 2021–27643 Filed 12–22–21; 8:45 am]
BILLING CODE 7535–01–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 703 and 721
RIN 3133–AF26
Mortgage Servicing Assets
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
The NCUA Board (Board) is
issuing a final rule to permit federal
credit unions (FCUs) to purchase
mortgage servicing assets (MSAs),
referred to as mortgage servicing rights
in the proposed rule, from other
federally insured credit unions subject
to certain requirements. Under the final
rule, FCUs with a CAMEL or CAMELS
composite rating of 1 or 2 and a CAMEL
or CAMELS Management component
rating of 1 or 2, may purchase the
mortgage servicing rights of loans that
the FCU is otherwise empowered to
grant, provided these purchases are
made in accordance with the FCU’s
policies and procedures that address the
risk of these investments and servicing
practices. The Federal Credit Union Act
(the Act) permits FCUs to purchase
mortgage servicing assets under their
express authority to purchase assets
from other credit unions.
DATES: The final rule is effective April
1, 2022.
FOR FURTHER INFORMATION CONTACT:
Thomas Fay, Director, Capital Markets;
John G. Nilles, Senior Capital Markets
Specialist, Office of Examination &
Insurance, or Ian Marenna, Associate
General Counsel; Chrisanthy Loizos,
Senior Trial Attorney, Office of General
Counsel, or Ernestine Ward, Consumer
Compliance Policy and Outreach
Program Officer, Office of Consumer
Financial Protection, at 1775 Duke
Street, Alexandria, VA 22314 or
telephone: (703) 518–6300, (703) 518–
6540, or (703) 518–6524.
SUPPLEMENTARY INFORMATION:
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SUMMARY:
I. Introduction
II. Final Rule
III. Legal Authority
IV. Discussion of Public Comments Received
on the Proposed Rule
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(1) The underlying mortgage loans of the
MSRs are loans the FCU is empowered to
grant; 5
(2) The FCU purchases the MSRs within
the limitations of the FCU’s board of
directors’ written purchase policies; and
(3) The FCU’s board of directors or
investment committee approves the purchase
in advance.
The NPR also included several
questions as to whether the rule should
place additional conditions on the
authority, such as capital requirements,
concentration limits, or other measures
to address consumer financial
protection, compliance risk and
liquidity risk.
Generally, when a lender originates a
mortgage loan, the lender may retain the
loan and the servicing function for the
loan in its portfolio, sell the loan along
with the MSRs to another party, or
separate the MSRs from its mortgage
loan and transfer either the loan or the
MSRs to another party. The NPR
focused on the purchase of MSRs as
assets that are distinct from their
underlying mortgage loans. The Board
1 12
U.S.C. 1757(7), (8), (14), (15).
FR 32989 (June 18, 1997); 66 FR 54168,
54169 (Oct. 26, 2001); 67 FR 78996, 78997 (Dec. 27,
2002); 12 CFR 703.16(a).
3 85 FR 86867 (Dec. 31, 2020).
4 12 U.S.C. 1757(14).
5 The phrase ‘‘empowered to grant’’ refers to an
FCU’s authority to make the type of loans permitted
by the Act, NCUA regulations, FCU Bylaws, and an
FCU’s own internal policies. See NCUA OGC Op.
04–0713 (Oct. 25, 2004) available at https://
www.ncua.gov/files/legal-opinions/OL20040713.pdf, 76 FR 81421, 81425 (December 28, 2011).
2 62
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proposed to permit FCUs to purchase
MSRs by removing MSRs from the list
of prohibited investments 6 in the
Investment Rule and adding the
purchase of MSRs from other FICUs to
the rule’s list of permissible investments
for FCUs.7
Under the current Investment Rule,
MSRs are defined as ‘‘a contractual
obligation to perform mortgage servicing
and the right to receive compensation
for performing those services. Servicing
is the administration of a mortgage loan,
including collecting monthly payments
and fees, providing recordkeeping and
escrow functions, and, if necessary,
curing defaults and foreclosing.’’ 8
Mortgage loan servicers, therefore, are
intermediaries between borrowers and
owners of the mortgage loans; their
servicing functions are subject to a
servicing agreement and consumer
protection laws, as applicable.9 MSRs,
or mortgage servicing assets, a term used
interchangeably with MSRs, are
recorded in accordance with Generally
Accepted Accounting Principles
(GAAP).10
Mortgage servicing can carry various
risks. Servicers are exposed to liquidity
risk if servicing agreements require the
servicer to remit mortgage loan
payments to the investors of sold loans
even when borrowers fail to make their
monthly payments. There are also
operational risks related to mortgage
servicing due to a myriad of statutes and
regulations that protect consumers,
which can expose FCUs to reputational,
legal, and compliance risk. The
compliance and reputation risk of a
mortgage servicer can be considerable
due to the high touch nature of
interactions with consumers and the
attendant legal requirements imposed
on mortgage servicers. For example,
depending on the particular servicer
and its activities, servicers must comply
with a variety of requirements,
including the Real Estate Settlement
Procedures Act (RESPA) and its
implementing regulation, Regulation X;
the Truth in Lending Act (TILA) and its
implementing regulation, Regulation Z;
as well as amendments to Regulations X
and Z under the Mortgage Servicing
Rules promulgated by the Consumer
Financial Protection Bureau, which
implement provisions of the DoddFrank Wall Street Reform and Consumer
6 12
CFR 703.16.
CFR 703.14.
8 12 CFR 703.2.
9 For example, see 12 CFR 1024.17; 12 CFR part
1024, subpart C; 12 CFR 1026.20, .36, .40–.41.
10 See Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC)
860—Transfer and Servicing of Financial Assets.
7 12
E:\FR\FM\23DER1.SGM
23DER1
]]>Agencies
[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 [www.gpo.gov]
[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
