Is Subordinated Debt Worth the Hassle?  

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The NCUA’s long and increasingly tortured history with subordinated debt took another turn last week, albeit not a particularly large one, when it finalized more changes to its subordinated debt rule. Most importantly, eligible credit unions can now offer subordinated debt with maturities greater than 20 years.

Since the NCUA authorized low-income credit unions to issue unsecured capital to non-members in 1996, the NCUA’s opinion of secondary capital has vasalated between considering it an important tool to help low-income credit unions meet the needs of their members, and a misused regulatory perk best understood as a security. Over the last six years in particular, there has been a decisive shift on both a policy and legal level, making it more difficult for low-income credit unions to qualify for subordinated debt while, at the same time, greatly expanding its availability for larger credit unions. The NCUA has got it half right, and now it’s up to the industry to continue to debate and advocate for expanded access to alternative capital.