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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 3133AE98

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 Treasurys 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 5186556, 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 701.34b, 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 116260 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 NCUAs 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 701.34b, c and d of the NCUAs 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 NCUAs regulations, for federal credit unions, or 741.203 of the NCUAs regulations, for federally insured, state-chartered credit unions.
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U.S.C. 4703aa2.
FR 53567 Sept. 28, 2021.

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