Shaping the Market
The ability to accept secondary capital (the precursor to what is now referred to as subordinated debt) has long been one of the benefits granted to Low-Income Designated Credit Unions to support their membership. An NCUA rule change has now expanded the universe of credit unions eligible to issue subordinated debt. As credit unions assist members in navigating the pandemic’s effects on unemployment, our economy, and general economic uncertainty, it is an opportune time to explore subordinated debt as an issuer.
Subordinated debt can be utilized effectively in the following situations:
- Pandemic Response – to restore risk-based net worth to historic levels following the recent influx of deposits
- Growth – to support rates of growth that exceed a credit union’s ability to maintain an optimal level of risk-based net worth
- Acquisitions – to offset capital dilution that results from the acquisition of a bank or combination with a less well-capitalized credit union
- Fortify – to cushion a credit unions’ capital in anticipation of recessionary conditions