BIRMINGHAM, England—Credit unions throughout the United Kingdom are being granted additional capabilities by the country's parliament to serve a wider variety of consumers left underserved by banks during the global financial crisis. Credit unions' lack of contribution to the crisis is driving these new opportunities, a recognition other countries, including the United States, would do well to acknowledge according to executives from World Council of Credit Unions (WOCCU) and Credit Union National Association (CUNA).
"The U.K.'s banking system has been decimated to an even greater degree than that of the U.S., but the country's credit unions have grown in terms of assets and members served," said Dave Grace, WOCCU vice president of association services, to participants of the Association of British Credit Unions Ltd. (ABCUL) fall meeting earlier this month. "Lawmakers have realized this and are expanding financial cooperatives' powers for the first time in 30 years. That recognition is something from which credit unions in other countries, including the U.S., could benefit."
The U.K.'s Financial Services Authority (FSA), the country's regulatory body, has taken steps to broaden financial cooperatives' abilities in recognition of the relatively stable position financial cooperatives have held even during the worst days of the crisis, according to Grace. Under proposed regulations, credit unions will be able to serve a wider swath of consumers, issue interest-bearing shares and gain access to alternative capital. Lawmakers also are increasing capital and liquidity requirements for the country's 500 credit unions as a part of the change to help avoid future financial industry problems and provide greater protection for consumers.
As part of the changes, the proposed regulations will raise the level of governance standards, increase minimum liquidity requirements for all credit unions and raise capital-to-asset ratios for smaller institutions. The proposal is out for comment until Feb. 10, 2010, with plans to enact the new rules during next year's second quarter. The new regulations will be phased in over a two- to three-year period.
Credit union stability in the U.K. has mirrored the stability of U.S. credit unions during the past year in that, unlike banks, credit unions have not solicited nor received government bailout funds. However, U.S. credit unions already have significantly greater authority than those in the U.K. and would not benefit as greatly by broadened service capabilities, according to Mike Schenk, CUNA vice present of economics and statistics.
"There are some fairly substantial differences between the credit union systems in the U.S. and U.K.," said Schenk, who shared a panel with Grace during the conference convened by ABCUL, WOCCU's member organization in the U.K. "We already have authority to do things that they don't and, since our credit unions are bigger, they tend to exercise that authority."
U.S. policymakers have been increasingly open to efforts to amend restrictions on credit union member business lending, Schenk explained. CUNA conservatively estimates that removing the decade-old limit would lead to an additional $10 billion in business loans in the first year the authority was expanded and that the resulting boost could generate 108,000 new jobs. The link between expanded authority and job creation is critical in the current economic environment, he noted.
Schenk agreed that U.S. credit unions deserve greater recognition for not contributing directly to the global recession, even as they struggle to deal with the fallout from competitors' errors in judgment. Public recognition, rather than increased opportunity, could be more beneficial in helping U.S. credit unions avoid punitive regulations as the industry emerges from the crisis, he added.
"For the most part, we're playing a defensive position," Schenk said. "However, the window of opportunity isn't opened quite as wide for credit unions in the U.S. as it is in the U.K."
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, 57,000 credit unions in 105 countries serve 217 million people. Learn more about World Council's impact around the world at www.woccu.org.