[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Rules and Regulations]
[Pages 72807-72810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27643]



[[Page 72807]]

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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 702 and 741

RIN 3133-AE98


Subordinated Debt

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is amending the Subordinated Debt rule, 
which the Board finalized in December 2020 with an effective date of 
January 1, 2022. This final rule amends the definition of 
``Grandfathered Secondary Capital'' to include any secondary capital 
issued to the United States Government or one of its subdivisions (U.S. 
Government), under a secondary capital application approved before 
January 1, 2022, irrespective of the date of issuance. This amendment 
will benefit eligible low-income credit unions (LICUs) that are either 
participating in the U.S. Department of the Treasury's (Treasury) 
Emergency Capital Investment Program (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 for such programs by December 
31, 2021. The Board is also amending the Subordinated Debt rule by 
extending the expiration of regulatory capital treatment for the 
aforementioned secondary capital issuances to the later of 20 years 
from the date of issuance or January 1, 2042.

DATES: The final rule is effective January 1, 2022.

FOR FURTHER INFORMATION CONTACT: Justin Anderson, Senior Staff 
Attorney, (703) 518-6556, Office of General Counsel, National Credit 
Union Administration, 1775 Duke Street, Alexandria, VA 22314.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Summary of Comments Received by the Board
III. Final Rule
IV. Administrative Law Matters
    A. Administrative Procedure Act
    B. SBREFA
    C. Paperwork Reduction Act
    D. Regulatory Flexibility Act Analysis
    E. Executive Order 13132
    F. Assessment of Federal Regulations and Policies on Families

I. Background

A. Subordinated Debt Rule

    At its December 2020 meeting, the Board issued a final Subordinated 
Debt rule permitting LICUs, Complex Credit Unions, and New Credit 
Unions to issue Subordinated Debt for purposes of Regulatory Capital 
treatment.\1\ Relevant to this final rule, the Subordinated Debt rule 
grandfathered secondary capital issued before January 1, 2022, and 
allowed such secondary capital to receive regulatory capital treatment 
until January 1, 2042 (20 years from the effective date of the 
Subordinated Debt rule).\2\ The grandfathering provision of the 
Subordinated Debt rule allows LICUs with grandfathered secondary 
capital to continue to be subject to the requirements of 12 CFR 
701.34(b), (c), and (d) (recodified in the December 2020 final 
Subordinated Debt rule as 12 CFR 702.414), rather than the requirements 
of the Subordinated Debt rule.\3\
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    \1\ 86 FR 11060 (Feb. 23, 2021). Capitalized terms in this 
preamble are defined in the December 2020 Subordinated Debt final 
rule.
    \2\ Id. at 11074.
    \3\ Id.
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    The Subordinated Debt rule also includes a provision stating that 
any issuances of secondary capital not completed by January 1, 2022, 
are, as of January 1, 2022, subject to the requirements applicable to 
Subordinated Debt in the Subordinated Debt rule.\4\ This provision 
would nullify any approved secondary capital application if the 
associated issuance is not completed before January 1, 2022. Any LICU 
in this situation would be required to reapply under the Subordinated 
Debt rule if such LICU sought to proceed with its planned secondary 
capital issuance.
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    \4\ Id. at 11083.
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B. Emergency Capital Investment Program

    Subsequent to the issuance of the Subordinated Debt rule, Congress 
passed the Consolidated Appropriations Act, 2021 (CAA).\5\ The CAA, 
among other things, created the ECIP. Under the ECIP, Congress 
appropriated funds and directed Treasury to make investments in 
``eligible 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.'' \6\ The definition of ``eligible institutions'' includes 
federally insured credit unions that are minority depository 
institutions or community development financial institutions, provided 
such credit unions are not in troubled condition or subject to any 
formal enforcement actions related to unsafe or unsound lending 
practices.\7\
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    \5\ Consolidated Appropriations Act, 2021, Public Law 116-260 
(H.R. 133), Dec. 27, 2020.
    \6\ Id. codified at 12 U.S.C. 4703a et seq.
    \7\ 12 U.S.C. 4703a(a)(2).
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    Under the terms developed by Treasury, investments in eligible 
credit unions will be in the form of subordinated debt. Treasury also 
aligned its investments in LICUs with the Federal Credit Union Act and 
the NCUA's regulations to allow eligible LICUs to apply to the NCUA for 
secondary capital treatment for these investments.
    Treasury opened the ECIP application process on March 4, 2021, with 
an application deadline of May 7, 2021. Treasury subsequently extended 
this deadline multiple times, with the most recent deadline being 
September 1, 2021.

C. Summary of the Proposed Rule

    At its September 2021 meeting, the Board issued a notice of 
proposed rulemaking to amend the Subordinated Debt rule to address a 
specific situation with funding of approved secondary capital 
applications.\8\
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    \8\ 86 FR 53567 (Sept. 28, 2021).
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    As discussed in subsection A of this section, if the ECIP 
investments, or investments from any other programs administered by the 
U.S. Government that can fund secondary capital, are not funded by the 
end of 2021, those approved LICUs would be required to reapply under 
the Subordinated Debt rule to complete an issuance. As this scenario 
would impose an unnecessary burden on these LICUs, the Board proposed 
to amend the Subordinated Debt rule to permit funding of secondary 
capital approved under the current secondary capital rule, beyond 2021, 
without the need to reapply under the Subordinated Debt rule. 
Regardless of the issuance date of the secondary capital, such 
secondary capital would, for the purposes of the Subordinated Debt 
rule, be considered Grandfathered Secondary Capital, and remain subject 
to 12 CFR 701.34(b), (c) and (d) of the NCUA's regulations (recodified 
in the December 2020 final Subordinated Debt rule as 12 CFR 702.414). 
The Board notes that the proposed changes were narrowly tailored to 
provide an exception to the issuance cutoff date, if the secondary 
capital issuance is:
    1. To the U.S. Government; and
    2. Being conducted under a secondary capital application that was 
approved before January 1, 2022, under either Sec.  701.34 of the 
NCUA's regulations, for federal credit unions, or Sec.  741.203 of the 
NCUA's regulations, for federally insured, state-chartered credit 
unions.

[[Page 72808]]

    Consistent with the final Subordinated Debt rule, any LICU not 
meeting the above criteria will remain subject to the requirement to 
complete any issuance by the end of 2021 or such issuance will be 
subject to the requirements of the final Subordinated Debt rule.
    The Board also proposed to amend the starting point for 
Grandfathered Secondary Capital to retain its status as Regulatory 
Capital. Currently, the Subordinated Debt rule states that all 
Grandfathered Secondary Capital will be treated as regulatory capital 
until January 1, 2042 (20 years from the effective date of the final 
Subordinated Debt rule). As the proposed rule would allow limited 
issuances of Grandfathered Secondary Capital beyond January 1, 2022, 
the Board proposed to allow such secondary capital to count as 
regulatory capital for up to 20 years from the date of issuance. The 
Board noted that this proposed amendment would provide equitable 
treatment for all issuances of Grandfathered Secondary Capital.

II. Summary of Comments

A. The Public Comments, Generally

    The NCUA received 15 comments following publication of the proposed 
rule. All of the commenters that addressed the proposed rule were in 
support of the proposed amendments. There were no commenters that 
opposed the proposed amendments.

B. Comments Outside the Scope of the Proposed Rule

    All of the commenters recommended additional changes to the 
Subordinated Debt rule. In the proposed rule, however, the Board stated 
the proposed changes contained therein were narrowly tailored to 
address a specific situation with funding of approved secondary capital 
applications.\9\ Therefore, the Board noted it was not considering any 
other changes to the final Subordinated Debt rule at that time and 
comments outside the scope of the proposed rule would be treated as 
such for the purpose of any final rule the Board may issue.\10\
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    \9\ Id. at 53568.
    \10\ Id.
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    While the comments recommending changes to the Subordinated Debt 
rule are outside the scope of this rulemaking, the Board will retain 
these comments for use in any future proposals to amend the 
Subordinated Debt rule.

III. Final Rule

    As no commenters opposed the proposed rule, the Board is finalizing 
the proposed amendments without change.

V. Administrative Law Matters

A. Administrative Procedure Act

    The Administrative Procedure Act (APA) generally requires that a 
final rule be published in the Federal Register no less than 30 days 
before its effective date except for (1) substantive rules which grant 
or recognize an exemption or relieve a restriction; (2) interpretative 
rules and statements of policy; or (3) as otherwise provided by the 
agency for good cause.\11\ Because the final rule relieves a 
restriction, the final rule is exempt from the APA's delayed effective 
date requirement.\12\ Therefore, this final rule will become effective 
on January 1, 2022.
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    \11\ 5 U.S.C. 553(d).
    \12\ Id. 553(d)(1).
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B. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) (SBREFA) generally provides for congressional review 
of agency rules.\13\ A reporting requirement is triggered in instances 
where the NCUA issues a final rule as defined by Section 551 of the 
APA.\14\ The NCUA does not believe this rule is a ``major rule'' within 
the meaning of the relevant sections of SBREFA. As required by SBREFA, 
the NCUA will submit this final rule to the Office of Management and 
Budget for it to determine if the final rule is a ``major rule'' for 
purposes of SBREFA. The NCUA also will file all appropriate 
Congressional reports.
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    \13\ Id. 801-804.
    \14\ Id. 551.
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C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) 
requires that the Office of Management and Budget approve all 
collections of information by a Federal agency from the public before 
they can be implemented. Respondents are not required to respond to any 
collection of information unless it displays a valid Office of 
Management and Budget control number. This final rule extends the time 
for certain issuances of secondary capital and the corresponding 
Regulatory Capital treatment of such issuances. As such, this rule does 
not require any information collection as defined by the Paperwork 
Reduction Act of 1995.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \15\ generally requires an 
agency to consider whether the rule it proposes will have a significant 
economic impact on a substantial number of small entities. For purposes 
of the RFA, the Board considers credit unions with assets less than 
$100 million to be small entities.\16\
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    \15\ Id. 601 et seq.
    \16\ NCUA Interpretive Ruling and Policy Statement 15-1. 80 FR 
57512 (Sept. 24, 2015).
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    The Board determined that the proposed rule would affect a small 
number of LICUs with approved secondary capital applications for 
issuances to the U.S. Government or its subdivisions. The rule is 
focused on relieving administrative application requirements that would 
otherwise apply. As such, the Board found that an RFA analysis was not 
required for the proposed rule. Accordingly, the Board certifies that 
the final rule does not have a significant economic impact on a 
substantial number of small credit unions.

E. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. The 
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the executive order to adhere to fundamental 
federalism principles.
    The rule relieves administrative application requirements that 
would otherwise apply and does not alter substantive requirements that 
apply to state-chartered credit unions generally. The Board has 
therefore determined that this rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

F. Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this rule will not affect family well-
being within the meaning of Sec.  654 of the Treasury and General 
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 
(1998).

List of Subjects

12 CFR Part 702

    Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 741

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.


[[Page 72809]]


    By the NCUA Board on December 16, 2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons discussed in the preamble, the NCUA is amending 12 
CFR parts 702 and 741, as amended by 86 FR 11060 (Feb. 23, 2021) and 
effective on January 1, 2022, as follows:

PART 702--CAPITAL ADEQUACY

0
1. The authority citation for part 702 continues to read as follows:

    Authority:  12 U.S.C. 1766(a), 1790d.


0
2. In Sec.  702.2 revise the definitions of ``Grandfathered Secondary 
Capital'' and ``Regulatory Capital'' to read as follows:


Sec.  702.2   Definitions.

* * * * *
    Grandfathered Secondary Capital means any secondary capital issued 
under Sec.  701.34 of this chapter, before January 1, 2022 or, in the 
case of a federally insured, state-chartered credit union, with Sec.  
741.204(c) of this chapter, before January 1, 2022. (12 CFR 701.34 was 
recodified as Sec.  702.414 as of January 1, 2022). This term also 
includes issuances of secondary capital to the U.S. Government or any 
of its subdivisions, under applications approved before January 1, 
2022, pursuant to Sec.  701.34 or Sec.  741.204(c) of this chapter, 
irrespective of the date of issuance.
* * * * *
    Regulatory Capital means:
    (1) With respect to an Issuing Credit Union that is a LICU and not 
a complex credit union, the aggregate outstanding principal amount of 
Subordinated Debt and, until the later of 20 years from the date of 
issuance or January 1, 2042, Grandfathered Secondary Capital that is 
included in the credit union's net worth ratio;
    (2) With respect to an Issuing Credit Union that is a complex 
credit union and not a LICU, the aggregate outstanding principal amount 
of Subordinated Debt that is included in the credit union's RBC Ratio;
    (3) With respect to an Issuing Credit Union that is both a LICU and 
a Complex Credit Union, the aggregate outstanding principal amount of 
Subordinated Debt and, until the later of 20 years from the date of 
issuance or January June 1, 2042, Grandfathered Secondary Capital that 
is included in its net worth ratio and in its RBC Ratio; and
    (4) With respect to a new credit union, the aggregate outstanding 
principal amount of Subordinated Debt and, until the later of 20 years 
from the date of issuance or January 1, 2042, Grandfathered Secondary 
Capital that is considered pursuant to Sec.  702.207.
* * * * *

0
3. Revise Sec.  702.401 to read as follows:


Sec.  702.401   Purpose and scope.

    (a) Subordinated Debt. This subpart sets forth the requirements 
applicable to all Subordinated Debt issued by a federally insured, 
natural person credit union, including the NCUA's review and approval 
of that credit union's application to issue or prepay Subordinated 
Debt. This subpart shall apply to a federally insured, state-chartered 
credit union only to the extent that such federally insured, state-
chartered credit union is permitted by applicable state law to issue 
debt instruments of the type described in this subpart. To the extent 
that such state law is more restrictive than this subpart with respect 
to the issuance of such debt instruments, that state law shall apply. 
Except as provided in the next sentence, any secondary capital, as that 
term is used in the Federal Credit Union Act, issued after January 1, 
2022, is Subordinated Debt and subject to the requirements of this 
subpart. Issuances of secondary capital, as that term is used in the 
Federal Credit Union Act, to the U.S. Government or any of its 
subdivisions, under applications approved before January 1, 2022, 
pursuant to Sec.  701.34 or Sec.  741.204(c) of this chapter, are not 
subject to the requirements applicable to Subordinated Debt, discussed 
elsewhere in this subpart, irrespective of the date of issuance.
    (b) Grandfathered Secondary Capital. Any secondary capital defined 
as ``Grandfathered Secondary Capital,'' under Sec.  702.402, is 
governed by Sec.  702.414. Grandfathered Secondary Capital will no 
longer be treated as Regulatory Capital as of the later of 20 years 
from the date of issuance or January 1, 2042.

0
4. In Sec.  702.402 revise the definition for ``Grandfathered Secondary 
Capital'' to read as follows:


Sec.  702.402   Definitions.

* * * * *
    Grandfathered Secondary Capital means any secondary capital issued 
under Sec.  701.34 of this chapter before January 1, 2022, or, in the 
case of a federally insured, state-chartered credit union, with Sec.  
741.204(c) of this chapter, before January 1, 2022. (12 CFR 701.34 was 
recodified as Sec.  702.414 as of January 1, 2022). This term also 
includes issuances of secondary capital to the U.S. Government or any 
of its subdivisions, under applications approved before January 1, 
2022, pursuant to Sec.  701.34 or Sec.  741.204(c) of this chapter, 
irrespective of the date of issuance.
* * * * *

0
5. In Sec.  702.414 revise the introductory paragraph and paragraph 
(a)(2) to read as follows:


Sec.  702.414   Regulations governing Grandfathered Secondary Capital.

    This section recodifies the requirements from 12 CFR 701.34(b), 
(c), and (d) that were in effect as of December 31, 2021, with minor 
modifications. The terminology used in this section is specific to this 
section. Except as provided in the next sentence, all secondary capital 
issued under Sec.  701.34 of this chapter before January 1, 2022, or, 
in the case of a federally insured, state-chartered credit union, Sec.  
741.204(c) of this chapter, that is referred to elsewhere in this 
subpart as ``Grandfathered Secondary Capital,'' is subject to the 
requirements set forth in this section. Issuances of secondary capital 
to the U.S. Government or any of its subdivisions, under applications 
approved before January 1, 2022, pursuant to Sec.  701.34 or Sec.  
741.204(c) of this chapter, are also considered ``Grandfathered 
Secondary Capital'' irrespective of the date of issuance.
* * * * *
    (a) * * *
    (1) * * *
    (2) Issuances not completed before January 1, 2022. Except as 
provided in the next sentence, any issuances of secondary capital not 
completed by January 1, 2022, are, as of January 1, 2022, subject to 
the requirements applicable to Subordinated Debt discussed elsewhere in 
this subpart. Issuances of secondary capital to the U.S. Government or 
any of its subdivisions, under applications approved before January 1, 
2022, pursuant to Sec. Sec.  701.34 or 741.204(c) of this chapter, are 
not subject to the requirements applicable to Subordinated Debt, 
discussed elsewhere in this subpart, irrespective of the date of 
issuance.
* * * * *

PART 741--REQUIREMENTS FOR INSURANCE

0
6. The authority citation for part 741 continues to read as follows:

    Authority:  12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31 
U.S.C. 3717.


0
7. Amend Sec.  741.204 by revising paragraph (c) to read as follows:

[[Page 72810]]

Sec.  741.204   Maximum public unit and nonmember accounts, and low-
income designation.

* * * * *
    (c) Follow the requirements of Sec.  702.414 of this chapter for 
any Grandfathered Secondary Capital (as defined in part 702 of this 
chapter).

[FR Doc. 2021-27643 Filed 12-22-21; 8:45 am]
BILLING CODE 7535-01-P