Billions in funds earmarked for credit unions under the Treasury’s Emergency Capital Investment Program could be exempted from the National Credit Union Administration’s pending subordinated debt rule.
Credit unions would prefer the option of using the ECIP money to meet their risk-based capital requirements, but that would be impossible under the current rule, which bans money from government programs from being used for that purpose.
At an NCUA meeting Thursday, the board approved a proposal to grandfather secondary capital issued by the United States government provided it is applied for by Jan. 1, 2022. It would not matter when a credit union receives the funds.
The subordinated debt rule was finalized in December 2020 and will take effect Jan. 1, 2022.
The ECIP was created to encourage low- and moderate-income community financial institutions to augment their efforts to support consumers and small businesses in their communities. It was established by the Consolidated Appropriations Act of 2021.
NCUA Chairman Todd Harper said Thursday that as of Sept. 17 the agency had granted 44 low-income credit unions the option of treating approximately $1.9 billion of ECIP funds as secondary capital.
Harper said that $4 billion of the total $9 billion in the ECIP is set aside for institutions with less than $2 billion of assets, and $2 billion of that amount is set aside for institutions with less than $500 million of 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 of assets, the industry is well positioned to benefit from the program, he said.
Under the subordinated debt rule, hundreds of credit unions that meet certain criteria will be permitted to sell debt to investors and use the proceeds to satisfy risk-based capital requirements.
NCUA staff said the maximum any credit union could obtain from the Treasury program is $250 million, but some credit unions have applied for as little as $10 million.
Vice Chairman Kyle Hauptman said some credit unions may already be counting on the money but cautioned that any “free money” program tends to attract a lot of applications, such as with the Small Business Administration’s Paycheck Protection Program.
But NCUA staffers said their understanding is that no institution that applied will be completely shut out unless there are extenuating circumstances.
“With the adjustment proposed today, credit unions whose applications are approved in 2021 won’t have to redo any paperwork for or resubmit an application to the NCUA. This adjustment is welcome news,” Hauptman said.
The economic crisis caused by the COVID-19 pandemic has severely affected low-and moderate-income communities, according to Harper. Significant job losses have made it increasingly difficult for individuals and families in those communities to pay for essential needs, he said.
The ECIP program will make investments in financial institutions best positioned to help those who were most affected.
“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,” he said.
Board member Rodney Hood said he “joyfully supports”any efforts that will help the Community Development Financial Institutions and minority deposit institutions.
“Those are the institutions that are ... the first responders when it comes to access,” he said.
The subordinated debt rule had been debated for years before the NCUA board reached an agreement on its parameters in December 2020.
The comment period for the proposed rule is 30 days from its publication in the Federal Register.
