The NCUA's low-income designation program offers a number of regulatory benefits for eligible credit unions and the members they serve, including the authority to obtain supplemental capital. As the number of low-income designated credit unions (LICUs) has grown and the NCUA's Final Rule on Subordinated Debt has taken effect expanding issuer eligibility, there is more opportunity than ever before for the industry to realize the potential benefits of the subordinated debt market.

What Is Subordinated Debt?

Subordinated debt is an unsecured loan and is treated as regulatory capital due to its subordination to all other creditors. Additionally, subordinated debt is considered another "layer of protection" subordinate to NCUSIF. As shown below, subordinated debt is uninsured and included in statutory net worth for LICUs only. Subordinated debt issued by a non-LICU will not be included in net worth or the net worth ratio. Regardless of designation, all credit unions that qualify to issue subordinated debt can include subordinated debt in their risk-based capital (RBC) ratio.