NCUA provides updates on ECIP, end of LIBOR

The NCUA on Wednesday provided updates regarding low-income credit unions, or LICUs, participating in the U.S. Department of the Treasury’s Emergency Capital Investment Program, or ECIP, and also reminded them to prepare for the end of LIBOR.

Eligible low-income credit unions, known as LICUs, may accept 30-year subordinated debt investments from the ECIP, the NCUA said in a letter to credit unions Wednesday. Additionally, a LICU may treat this ECIP funding as secondary capital in accordance with the NCUA’s regulations, provided that any LICU receiving secondary capital treatment has an NCUA-approved secondary capital plan by Dec. 31, 2021.

The final Subordinated Debt rule, passed by the NCUA Board in January 2021, includes a 20-year limitation on the regulatory capital treatment of “Grandfathered Secondary Capital,” which is defined as any secondary capital issued under a secondary capital plan that was approved by the NCUA before Jan. 1, 2022, according to the agency. Further, the NCUA intends to clarify that ECIP participating credit unions may count ECIP funding as regulatory capital for the entire time it is held.

“Credit unions have a statutory mission to meet the credit and savings needs of their members, including — and especially — those of modest means,” said Todd Harper, NCUA chairman. “The changes announced today will allow ECIP participating credit unions to fulfill that statutory mission and advance economic equity and justice. Going forward, the NCUA will pursue additional action to permit ECIP funding to count as regulatory capital for the entire time it is held. I look forward to working with my fellow board members on this important work.”

Prepare for the end of LIBOR
As a follow-up to a previous letter to credit unions about the LIBOR transition, the NCUA on Wednesday also provided credit unions with additional reminders about the end of LIBOR.

The NCUA is encouraging all federally insured credit unions to transition away from using U.S. dollar LIBOR as a reference rate as soon as possible, but no later than Dec. 31, 2021, and to ensure existing contracts have “robust fallback language” that includes a clearly defined alternative reference rate.

On March 5, 2021, the LIBOR administrator announced it will stop publishing the one-week and two-month LIBOR settings immediately following the Dec. 31, 2021, LIBOR publication, according to the NCUA. The remaining LIBOR settings will cease immediately following the LIBOR publication on June 30, 2023, and while the extension of the publication of certain LIBOR settings through June 30, 2023 is not an opportunity to continue using LIBOR, it will allow some legacy LIBOR contracts to mature naturally.

Todd Harper, NCUA chairman, previously stated that failure to prepare for LIBOR disruptions could undermine a federally insured credit union’s financial stability, and safety and soundness.

Credit unions can learn more about LIBOR transition plans in a May 2021 letter to credit unions accessible on the NCUA website.

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