Federal Register - February 23, 2021
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Source: Federal Register
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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations
that is otherwise exempt under paragraph a of this section in the following circumstances:
i Unsafe or unsound condition. The NCUA Board has determined, after providing the new credit union with written notice and opportunity for hearing pursuant to 747.2003 of this chapter, that the new credit union is in an unsafe or unsound condition; or ii Unsafe or unsound practice. The NCUA Board has determined, after providing the new credit union with written notice and opportunity for hearing pursuant to 747.2003 of this chapter, that the new credit union has not corrected a material unsafe or unsound practice of which it was, or should have been, aware.
2 Non-delegation. The NCUA Board may not delegate its authority under paragraph c of this section.
3 Consultation with state officials.
The NCUA Board shall consult and seek to work cooperatively with the appropriate state official before taking action under paragraph c of this section and shall promptly notify the appropriate state official of its decision to take action under paragraph c of this section.
d Discretionary liquidation.
Notwithstanding paragraph a of this section, the NCUA may place a new credit union into liquidation pursuant to 12 U.S.C. 1787a3A, provided that the new credit unions ratio under paragraph a3 of this section is, as of the applicable date of determination, below six percent 6% and the new credit union has no reasonable prospect of becoming adequately capitalized under 702.202.
e Restrictions on payments on Subordinated Debt. Beginning 60 days after the effective date of a new credit union being classified by the NCUA as uncapitalized, the new credit union shall not pay principal of or interest on its Subordinated Debt, except that unpaid interest shall continue to accrue under the terms of the related Subordinated Debt Note, to the extent permitted by law.
14. Add subpart D to read as follows:
Subpart DSubordinated Debt, Grandfathered Secondary Capital, and Regulatory Capital Sec.
702.401 Purpose and scope.
702.402 Definitions.
702.403 Eligibility.
702.404 Requirements of the Subordinated Debt and Subordinated Debt Note.
702.405 Disclosures.
702.406 Requirements related to the offer, sale, and issuance of Subordinated Debt Notes.
702.407 Discounting of amount treated as Regulatory Capital.
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702.408 Preapproval to issue Subordinated Debt.
702.409 Preapproval for federally insured, state-chartered credit unions to issue Subordinated Debt.
702.410 Interest payments on Subordinated Debt.
702.411 Prior written approval to prepay Subordinated Debt.
702.412 Effect of a merger or dissolution on the treatment of Subordinated Debt as Regulatory Capital.
702.413 Repudiation safe harbor.
702.414 Regulations governing Grandfathered Secondary Capital.
Appendix A to Subpart D of Part 702
Disclosure and Acknowledgement Form
Subpart DSubordinated Debt, Grandfathered Secondary Capital, and Regulatory Capital 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 NCUAs review and approval of that credit unions 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.
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.
b Grandfathered Secondary Capital.
Any secondary capital issued under 701.34 of this chapter before January 1, 2022, is governed by 702.414.
Grandfathered Secondary Capital will no longer be treated as Regulatory Capital as of January 1, 2042.
702.402
Definitions.
To the extent they differ, the definitions in this section apply only to Subordinated Debt and not to Grandfathered Secondary Capital.
Definitions applicable to Grandfathered Secondary Capital are in 702.414. All other terms in this subpart and not expressly defined in this section have the meanings assigned to them elsewhere in this part. For ease of use, certain key terms are included in this section using cross citations to other sections of this part where those terms are defined.
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Accredited Investor means a Natural Person Accredited Investor or an Entity Accredited Investor, as applicable.
Appropriate Supervision Office means, with respect to any credit union, the Regional Office or Office of National Examinations and Supervision that is responsible for supervision of that credit union.
Complex credit union has the same meaning as in subpart A of this part.
Entity Accredited Investor means an entity that, at the time of offering and closing of the issuance and sale of Subordinated Debt to that entity, meets the requirements of 17 CFR 230.501a.
Grandfathered Secondary Capital means any secondary capital issued under 12 CFR 701.34 revised as of January 1, 2021 or, in the case of a federally insured, state-chartered credit union, with 741.204c of this chapter, before January 1, 2022. 12 CFR 701.34
was recodified as 702.414 as of January 1, 2022.
Immediate Family Member means spouse, child, sibling, parent, grandparent, or grandchild including stepparents, stepchildren, stepsiblings, and adoptive relationships.
Issuing Credit Union means, for purposes of this subpart, a credit union that has issued, or is in the process of issuing, Subordinated Debt or Grandfathered Secondary Capital in accordance with the requirements of this subpart.
Low-income designated credit union LICU is a credit union designated as having low-income status in accordance with 701.34 of this chapter.
Natural Person Accredited Investor means a natural person who, at the time of offering and closing of the issuance and sale of Subordinated Debt to that person, meets the requirements of 17
CFR 230.501a; provided that, for purposes of purchasing or holding any Subordinated Debt Note, this term shall not include any board member or Senior Executive Officer of the Issuing Credit Union or any Immediate Family Member of any board member or Senior Executive Officer of the Issuing Credit Union.
Net worth has the same meaning as in 702.2.
Net worth ratio has the same meaning as in 702.2.
New credit union has the same meaning as in 702.201.
Offering Document means the documents required by 702.408, including any term sheet, offering memorandum, private placement memorandum, offering circular, or other similar document used to offer and sell Subordinated Debt Notes.
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