Board Member Todd M. Harper Statement on Corporate Credit Unions and Subordinated Debt

As Prepared for Delivery on January 14, 2021

Thank you, Mr. Chairman, and thank you, Scott, for your briefing on this relatively straightforward regulation to update our rules and regulations to clarify that corporate credit unions may purchase subordinated debt instruments issued by natural person credit unions.

The matter before us completes unfinished work. We have previously proposed this change, but we did not finalize it when adopting the corporate credit union rule changes in October because the subordinated debt rulemaking remained open. With the completion of that rulemaking in December, now is a good time for us to finalize our work on this unresolved subject.

What is more, the final rule is narrowly tailored and targeted to provide corporate credit unions with the same powers and guardrails as consumer credit unions to make limited investments in subordinated debt issued by natural person credit unions. One of these guardrails is particularly important in my view.

Because a natural person credit union subordinated debt instrument would be in a first-loss position, even before the Share Insurance Fund and any private insurance fund or entity, an involuntary liquidation of the issuing credit union would potentially mean large, and likely total, losses for the holders of those subordinated obligations. In fully deducting such instruments from a corporate credit union’s Tier 1 capital, the final rule strikes the right balance between providing corporate credit unions the flexibility to purchase natural person credit union subordinated debt instruments and avoiding undue systemic risk to the credit union system.

The corporate credit union crisis of more than a decade ago taught us the importance of mitigating cascading capital calls. Therefore, I am pleased that this rulemaking remembers the lessons of the past.

In sum, I will support this final rule. Thank you, Mr. Chairman, I have no further remarks.