NCUA Board Passes League-Supported Final Rule on Subordinated Debt; Board Also Addresses Impact of Recent Bank Failures

The NCUA Board today passed its final rule on subordinated debt, while also addressing the recent bank failures that have caused some concern for the overall health of the nation’s financial system.

“We’ve been keenly interested in adoption of the subordinated debt rule as an important tool to aid credit unions eligible to participate in Treasury’s Emergency Capital Investment Program,” said League President/CEO Carrie Hunt, who attended today’s NCUA Board meeting in-person. “The rule also provides additional flexibility for credit unions interested in pursuing subordinated debt and makes minor modifications that make the process easier and more appealing to credit unions.”

To kick off the meeting, all three Board members noted that the nation’s credit unions and the National Credit Union Share Insurance Fund are safe and sound. They also pointed to tools – old and new – designed to help credit unions manage liquidity challenges, should they arise, including NCUA’s Central Liquidity Facility, the Fed’s Discount Window and the Fed’s newly created Banking Term Funding Program.

You can read the Chairman Todd Harper’s statement here.

The Board also reminded credit unions of the need to be vigilant with regard to interest rate risk in today’s rising rate environment. NCUA’s guidance related to the Net Economic Value methodology clarifies that credit unions must have an appropriate plan for managing interest rate risk.

“The events of the past week underscore exactly why we are so concerned about interest rate risk,” said Vice Chairman Kyle Hauptman. “[T]his Board is very aware that it is a fairly unprecedented rate hiking cycle we’ve been in. We know it’s not easy to manage.”