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WBA Requests NCUA Withdraw Its Subordinated Debt Proposal

In a strongly worded comment letter filed yesterday, WBA requested NCUA withdraw its subordinated debt proposed rule. The proposal allows: a low-income credit union (LICU) to include subordinated debt in its risk-based capital (RBC) ratio as well as in its net worth requirement: a Complex Credit Union that is not an LICU to include subordinated debt in its RBC ratio; and a New Credit Union that is not an LICU to use subordinated debt to comply with NCUA’s prompt corrective action regulations. The proposal also extends the eligibility to issue subordinated debt to credit unions that anticipate being designated as an LICU or non-LICU Complex Credit Union within 24-months following the credit union’s planned issuance of the debt.  

In the letter, WBA stated its belief that NCUA’s authority is limited under the Federal Credit Union Act to permit only LICU’s to count subordinated debt instruments toward the net worth requirement and that Congress has not given NCUA the authority to allow for issuance of such instruments for any other purpose. In addition, WBA stated NCUA’s proposal failed to impose a reasonable limit on the amount of subordinated debt a credit union may issue, failed to prescribe a limit on the use of the funds, and permits credit unions to purchase subordinated debt of other credit unions in too broad a manner.  

WBA also stated that NCUA’s own credit union data contradicts NCUA’s stated purpose for the proposed rule, calling into question NCUA’s real reason for issuing the proposal. WBA also stated that through the proposed rule, credit unions are taking yet another step toward being indistinguishable from banks and should carry the same responsibilities as banks, including paying taxes. To read more of WBA’s comments regarding the proposal, click here.

By, Ally Bates