Less Is More, WOCCU Tells Basel Committee
Rules Must Recognize Smaller Institutions’ Effectiveness During the Economic Crisis
June 10, 2010
FRANKFURT, Germany — Smaller financial firms, including the world's credit unions, did better than their larger counterparts during the recent economic crisis, but attempts to strengthen global financial regulations by closing loopholes in existing laws could unintentionally cause problems for those firms. That was the message a World Council of Credit Unions (WOCCU) delegation brought to attendees at a Basel Committee on Banking Supervision meeting held here June 1.
WOCCU was one of five organizations summoned by the Basel Committee — and the only one representing credit unions — to discuss the committee's current capital and liquidity proposals. From a participant list that included the heads of Deutsche Bank, Barclays PLC, HSBC, Citibank and others, the committee solicited opinions on proposed capital level increases and the introduction of first-time global liquidity standards. The proposed standards make increased credit union access to central bank liquidity, capital sources, deposit insurance and payment systems even more critical in helping financial cooperatives avoid facing unintentional restrictions in serving members, WOCCU said.
"For the past six years we've seen global capital rules set in favor of large money center banks," explained Dave Grace, WOCCU vice president of association services, who traveled to Frankfurt with WOCCU President and CEO Pete Crear. "We drove home the point that credit unions have been more stable, more resilient and have a lower risk profile than large banks. These advantages need to be reflected in the committee's pending recommendations."
Basel Committee members, led by Chair Nout Wellink, acknowledged the severity of the proposed changes, estimating that current proposals could reduce the global GDP by .5%-1% due to the proposed leveraging restrictions on financial institutions. Meeting participant concerns were added to existing industry input, which includes the contents of the more than 300 comment letters the committee has already received. The committee will attempt to synthesize all information as it finalizes a regulatory reform package for presentation at the upcoming Group of 20 (G-20) nations summit meeting Nov. 11-12 in Seoul, South Korea.
During the Frankfurt meeting, WOCCU representatives stressed the success credit unions have had during the economic crisis and the intrinsic strength of the cooperative model. The delegation also noted that specific recognition of financial cooperatives' unique advantages exist in the committee's capital proposal, but appear absent in the proposed liquidity model. Continued absence of that consideration, as well as continued lack of access to central bank liquidity sources, could keep credit unions from successfully fulfilling their mission, a force that has helped blunt the impact of the economic meltdown this past year, according to WOCCU's Crear.
"Better rules for financial institutions worldwide is the first step toward addressing the ills caused by the 2009 economic crisis," said Crear. "By meeting with the Basel Committee on these issues, we've assured that credit unions will continue to have a seat at the table and a credible voice in the global re-regulation of financial services."
World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.
World Council has implemented more than 290 technical assistance programs in 71 countries. Worldwide, 60,500 credit unions in 109 countries serve 223 million people. Learn more about World Council's impact around the world at www.woccu.org.