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NCUA Chairman Todd M. Harper Statement on Subordinated Debt Emergency Capital Investment Program Proposed Rule

September 2021
NCUA Chairman Todd M. Harper Statement on Subordinated Debt Emergency Capital Investment Program Proposed Rule
Chairman Todd M. Harper

NCUA Chairman Todd M. Harper at the agency's headquarters in Alexandria, Virginia.

As Prepared for Delivery on September 23, 2021

Thank you, Justin and Tom, for your presentation on the Subordinated Debt Emergency Capital Investment Program Proposed Rule. As you noted, the NCUA Board is proposing this rule to amend the subordinated debt regulation, which we finalized in December 2020 with an effective date of January 1, 2022.

Specifically, today’s proposal would amend the definition of “Grandfathered Secondary Capital” to include any secondary capital issued to the United States government under an application approved before January 1, 2022, regardless of the date of issuance, to permit the funding of secondary capital approved under the current rule, beyond 2021, without the need to reapply under the subordinated debt rule.

The proposed change would benefit eligible low-income credit unions that are either participating in the U.S. Department of the Treasury’s Emergency Capital Investment Program — commonly known as 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 by December 31, 2021. The proposal would also provide that the expiration of regulatory capital treatment for these issuances is the later of 20 years from the date of issuance or January 1, 2042.

The economic crisis caused by the COVID-19 pandemic has disproportionately affected low- and moderate-income communities. Significant job losses in these places have made it increasingly difficult for individuals and families — many of whom are people of color — to pay for essential needs.

To provide a measure of relief, Congress enacted the ECIP, which authorizes the U.S. Department of the Treasury to make investments in certified Community Development Financial Institutions and minority depository institutions to support their efforts to “provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially in low-income and underserved communities.”

In February, each of us on the NCUA Board strongly encouraged eligible credit unions to tap into the ECIP to support the communities they serve. Eligible credit unions are uniquely positioned to step in and step up, because of their size and their business plans focused on fostering economic development and wealth building in economically challenged areas.

At the time, we also noted that the total investments from ECIP could not exceed $9 billion. Once the Treasury Department invests the appropriated $9 billion, there will be no further ECIP funding. For that reason, we encouraged eligible credit unions to quickly capitalize on this opportunity.

We additionally noted that $4 billion of this total funding is set aside for institutions with less than $2 billion in assets, and $2 billion of that amount is set aside for institutions with less than $500 million in assets. With a median asset size of less than $50 million and three out of four federally insured credit unions having less than $200 million in assets, the industry is well positioned to benefit from these set asides.

The Treasury Department opened the ECIP application process on March 4, 2021, with an application deadline of May 7, 2021. This deadline was subsequently extended multiple times, with the most recent deadline, as of the date of this proposal, being September 1, 2021. As of September 17, 2021, 44 low-income credit unions have received approval from the NCUA to issue secondary capital under the ECIP for an aggregate amount of approximately $1.9 billion.

In light of the targeted scope, the prior public comment period, and the timing constraints on the subordinated debt rule, a 30-day comment period for public input is necessary. This shorter timeframe will allow us to consider the responses and finalize the revised grandfather language, so credit unions receiving ECIP funds after December 31st will not need to reapply to the NCUA for secondary capital approval under the new subordinated debt rule.

Additionally, the changes proposed in this rule are narrowly tailored to address the specific situation with funding of approved secondary capital applications. Therefore, we are not considering any other changes to the final subordinated debt rule. Comments outside the scope of the changes proposed today will be treated as such for the purposes of any final rule the Board may issue.

That said, I do have one question that is outside of the scope of today’s proposal. I regularly hear concerns about the 20-year maximum term we have set for subordinated debt to be on the books of a federally insured credit union. Justin, I know you briefly discussed this issue in your presentation, but would you expand on that point now? Why did we set a 20-year maximum term for subordinated debt? And, is it feasible for the agency to set the maximum term at 30 years to bring the maximum time period allowed for ECIP funding into alignment with the NCUA’s subordinated debt rule?

As our nation continues to grapple with the COVID-19 induced economic crisis, I again encourage credit unions to step in and step up to support the communities that they serve and that have been disproportionately affected by the pandemic. Whether it be through the ECIP, some other external program, or a credit union’s own initiative, the NCUA is here to facilitate the efforts of our nation’s financial first responders in bettering the lives of people living in underserved areas.

That concludes my remarks. I now recognize Vice Chairman Hauptman for any comments or questions that he may have.

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