Subordinated debt rule, four other items approved at first day of NCUA Board’s two-day meeting

During the first part of a two-day meeting Thursday, the NCUA Board unanimously approved a final rule that amends various parts of the NCUA’s regulations to permit low-income designated credit unions, complex credit unions and new credit unions to issue subordinated debt for purposes of regulatory capital treatment.

The board finalized the rule “largely as proposed” in January 2020, however, based upon comments received, changes to the final rule, according to the NCUA, include:

  • amending the definition of accredited investor;
  • providing a longer timeframe in which a credit union may issue subordinated debt after approval;
  • reducing the required number of years of pro forma financial statements an issuing credit union must provide with its application;
  • clarifying the prohibition on subordinated debt issuances outside of the United States; and
  • clarifying that the NCUA board will publish a fee schedule only if it makes a determination to charge a fee.

This rule is effective Jan. 1, 2022.

In other action, the board approved four items, for which comments will be accepted for 30 days following publication in the Federal Register.

Field of membership shared facility requirements. The board is proposing a rule to include any shared branch, shared ATM or shared electronic facility in the definition of “service facility” for a multiple common-bond federal credit union that participates in a shared branching network, according to the NCUA.

The federal credit union does not need to be an owner of the shared branch network for the shared branch or shared ATM to be a service facility, and these changes would apply to the definition of a service facility for additions of select groups to the fields of membership of multiple common-bond federal credit unions and for expansions into underserved areas.

Regulatory relief in response to COVID-19. The board unanimously approved extension of a temporary final rule that provides regulatory relief measures in response to COVID-19 to Dec. 31, 2021. The original temporary final rule, issued in April 2020, modified certain regulatory requirements to help ensure that federally insured credit unions remain operational and can properly conduct appropriate liquidity management to address economic conditions caused by the COVID-19 pandemic. The temporary final rule had previously been set to expire on Dec. 31, 2020.

Proposed rule to permit purchase of mortgage servicing rights. The board approved 2-1 a proposed rule to amend its investment regulation to permit federal credit unions to purchase mortgage servicing rights from other federally insured credit unions under certain conditions.

Under the proposed rule, eligible federal credit unions may purchase the mortgage servicing rights of loans that the federal credit union is otherwise empowered to grant, provided these investments are consistent with safety and soundness and made in accordance with the federal credit union’s policies and procedures that address the risk of these investments and servicing practices, according to the NCUA.

Proposed overdraft rule. The board approved 2-1 a proposed rule that would remove the 45-day limit for a member to either deposit funds or obtain an approved loan from a federal credit union to cover an overdraft, and replaced it with a requirement that the written policy must establish a specific time limit “that is both reasonable and applicable to all members, for a member either to deposit funds or obtain an approved loan from the federal credit unions to cover each overdraft.”

Finally, the board was briefed on the National Credit Union Share Insurance Fund’s normal operating level for 2021, and it was recommended the level remain unchanged at 1.38%.

At Friday’s meeting, the will consider Final Rule, Part 701, Annual Operating Fee Assessment and the 2021-2022 budget. The board will also receive a briefing on the NCUA operating fee schedule and overhead transfer rate. Look for a recap in Monday’s New York Minute.

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