Proposed rules on subordinated debt, bank acquisitions transparency ahead for credit union regulator

'Phase-in' of CECL accounting rule also being planned

Proposed rules on subordinated debt to be counted as regulatory capital for some credit unions, and another increasing transparency when credit unions acquire assets of banks, will be brought up for consideration before year’s end, the chairman of the board of the federal regulator for credit unions said Tuesday.

“By the end of the year, I plan to bring before the board a proposed rule to allow subordinated debt to be counted as regulatory capital for a broader range of credit unions,” National Credit Union Administration Board Chairman Rodney Hood said in remarks before a trade group conference in Washington.

Subordinated debt – a form of alternative capital – would give credit unions another way to build capital (other than from net income; credit unions are not stock-held).

With regard to transparency in acquisitions by credit unions of small banks, Hood conceded that the number of transactions are “relatively small by any standard.” Nevertheless, Hood said, he plans for the agency to consider a rulemaking on the issue to add more transparency to the process.

“Right now, the NCUA must approve these transactions, as does the FDIC for these identical transactions,” Hood said. “Data suggest these are generally smaller institutions with lower profitability before the transactions occurred. If it makes it possible for a local financial institution to keep its doors open, then we must consider this factor.”

The rising incidence of credit unions acquiring banks (typically through “purchase and assumption” arrangements) is scorned by some in the banking industry. According to numbers compiled by S&P Global Market Intelligence, 12 bank acquisitions by credit unions have been announced this year; nine were announced the previous year. From 2013-17, there were 12 total.

In other comments, Hood said compliance with new accounting rules affecting current expected credit losses (CECL) can be phased in by the agency. He said the agency’s general counsel has determined that the board has authority to allow a phase-in of the requirements of the rule, which replaces the current allowance for loan and lease losses (ALLL) accounting standard.

“This will go a long way toward providing relief to credit unions that could see relatively large increases to their loan loss reserves when the new accounting standard becomes effective,” Hood said.

NCUA Chairman Rodney E. Hood Remarks – NAFCU Congressional Caucus

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