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Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Proposed Rules
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 701.34b, c and d of the NCUAs 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 NCUAs regulations, for federal credit unions, or 741.203 of the NCUAs 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 872, as amended by IRPS 032
and IRPS 151. 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 NCUAs 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 LICUs 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 LICUs 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 Boards 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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