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The NCUA has reminded credit unions that the final subordinated debt rule, which would allow many credit unions to increase capital outside of retained earnings through a subordinated debt issuance, goes into effect Jan. 1, 2022.

The final rule amends various parts of the NCUA’s regulations to permit low-income designated credit unions, complex credit unions, and new credit unions to issue subordinated debt for purposes of regulatory capital treatment.

With one potential exception, any issuances of secondary capital not completed by Jan. 1, 2022, will be subject to the requirements of the final rule, according to the NCUA. Any low-income designated credit union that does not complete its secondary capital issuance by the Jan. 1, 2022 will be required to be approved under the final rule, if such low-income credit union seeks to issue subordinated debt.

At its September meeting, the NCUA board of directors proposed an amendment that would allow low-income designated credit unions to issue secondary capital approved in 2021, irrespective of the date of issuance, provided the issuances are to the United States government or one of its subdivisions, according to the agency. The board will consider a final version of this proposal before Jan. 1, 2022.

The NCUA also advised that, given the current 45-day review period for secondary capital plans, any low-income credit union still planning to submit a secondary capital plan should do so as soon as possible. Further, if a low-income designated credit union plans to submit a secondary capital plan this year, it should consider using the application requirements in section 702.408 of the final subordinated debt rule when drafting its plan and submitting an application.

 The full letter to credit unions can be accessed on the NCUA website.