WOCCU Executives Make Credit Unions' Case to Basel Committee Chairman
Regulatory Pendulum “Swinging” Toward Increased Regulation, Reserve Requirements
April 23, 2009
AMSTERDAM—Pete Crear, president and CEO of World Council of Credit Unions (WOCCU), wants the Basel Committee on Banking Supervision to know that credit unions and financial cooperatives did not contribute to the current global financial crisis. WOCCU's chief executive last week traveled to Amsterdam to meet personally with Basel Chairman Nout Wellink to make the case that credit unions should not be penalized by tougher capital requirements than those faced by larger, riskier institutions that present systemic risk to the global financial system.
The April 15 visit by Crear and Dave Grace, WOCCU vice president of association services, followed three letters WOCCU had earlier sent in response to the Basel Committee's proposed rules on stress-testing procedures and capital level requirements. The committee believes that increased capital reserves are necessary to foster greater global resilience to future episodes of economic and financial stress and has made a series of recommendations for increasing reserves by 2010.
In some cases, however, the proposed standards for credit unions exceed levels required for large, complex banks, prompting WOCCU to call for a "rebalancing" of inconsistencies. WOCCU addressed additional issues in a fourth letter sent to the committee immediately following last week's visit.
"We didn't want credit unions and financial cooperatives to pay an unfair price as part of the solution to a crisis they had no hand in making," Crear said. "Chairman Wellink was very receptive to our comments and assured us that he would bring our concerns forth to his fellow committee members."
Cooperative financial institutions play a vital role, not only in serving the financial needs of 857 million consumers worldwide, but by spreading economic risk over a greater number of institutions. By contrast, existing industry risk-modeling standards have failed to keep large banks from hemorrhaging losses that have fed the global economic downturn. Smaller institutions, especially member-owned financial cooperatives, hold smaller concentrations of funds, strengthening the global financial network by reducing the risk each institution poses.
"We want to ensure at the implementation of these rules that financial supervisors recognize that credit unions are different from banks," Grace said.
Under Basel II guidelines, larger financial institutions may hold comparatively less capital than smaller institutions. However, the current crisis has shown that many larger institutions are riskier and prone to greater systemic problems. Failure to rebalance capital requirements within Basel II to appropriate levels will potentially weaken smaller institutions. Fair capital requirements for institutions of all sizes not only aid financial cooperatives' operating capabilities, but they strengthen the soundness and stability of the international banking system.
"Chairman Wellink told us the pendulum was swinging toward more stringent regulation and expressed concern that it may swing too far," Crear said. "We've offered WOCCU as an information resource on financial cooperatives to the committee in hopes of keeping credit unions from being unfairly penalized for the current situation."
To view all four letters in their entirety, please visit the WOCCU Website's advocacy section at www.woccu.org/positionpapers.
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 300+ technical assistance programs in 89 countries. Worldwide, 68,882 credit unions in 109 countries serve 235 million people. Learn more about World Council's impact around the world at www.woccu.org.