CUNA Mutual Group supports NCUA subordinated debt proposal and resulting capital benefits for credit unions

Company offers assistance, suggested amendments to proposed rule in comment letter to agency.

MADISON, WI (July 13, 2020)CUNA Mutual Group expressed its strong support for the National Credit Union Administration’s (NCUA) proposed expansion of the subordinated debt rule and suggested several amendments in a comment letter sent to the agency Wednesday.

NCUA’s proposal would enlarge the universe of credit unions that are eligible to raise subordinated capital from outside investors. The proposed rule would permit low-income designated credit unions (LICUs), complex credit unions, and new credit unions to issue subordinated debt for purposes of regulatory capital treatment.

Credit unions are limited in their ability to raise capital, other than through retained earnings. CUNA Mutual Group is a long-time advocate in the ability for credit unions to access alternative forms of capital, and the company has a breadth of experience over many years in dealing with the capital needs of credit unions, including low-income-designated credit unions and other cooperative financial institutions.

In the company’s comment letter, Michael F. Anderson, senior vice president and chief legal officer, said if implemented thoughtfully, the NCUA’s efforts will provide credit unions with an important tool – enabling their growth, increasing their ability to absorb losses during severe economic downturns, and allowing them to continue providing essential services to under-served communities – while preserving the unique cooperative nature and member focus of credit unions.

“CUNA Mutual Group believes all consumers should have access to a brighter financial future. NCUA’s proposed rule would not only help credit unions grow in general but would also positively impact low-income credit unions’ ability to serve members in underserved areas,” Anderson said.

In its comment letter, CUNA Mutual Group also offered several suggested amendments to the proposed rule. These include:

  • More flexibility in the issuing process to allow credit unions to tailor their approach to raising capital to best maximize their resources and fit their unique circumstances;
  • Clear authority on the credit union industry’s ability to use cooperative strategies to help raise capital for different sizes of credit unions; and
  • Amendments to specific language in the proposed rule to avoid misinterpretation and more closely adhere to common capital market practices.

Anderson said CUNA Mutual Group believes that expanding the universe of credit unions that are eligible to raise subordinated capital from outside investors is very important to the credit union industry as a whole. With the adoption of the proposed amendments, the NCUA’s rule will allow the emerging credit union subordinated capital market to grow and mature.

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