The Bank for International Settlements Tower, home of the Basel Committee on Banking Supervision in Basel, Switzerland.
BASEL, Switzerland — World Council of Credit Unions and the Credit Union National Association (CUNA), World Council's member organization in the United States, met with representatives from the secretariat of the Basel Committee on Banking Supervision at the Bank for International Settlements on Dec. 5 to discuss the implications of Basel III capital requirements for credit unions.
In December 2010, the Basel Committee on Banking Supervision issued "Basel III," a set of international capital and liquidity standards for financial institutions that are applied at the national level. Jurisdictions such as Australia, Bolivia, Brazil, several Canadian provinces and Ecuador have previously enacted capital rules for credit unions based on Basel II and are likely to implement Basel III for credit unions as well.
"How mutual financial capital instruments fit into the Basel III framework is a common and pressing issue for many credit union systems around the world today," said Brian Branch, World Council president and CEO.
Basel III recognizes that cooperative institutions such as credit unions can issue Basel III-compliant capital instruments, including shares or subordinated debt, provided those instruments are considered "equivalent" in most respects with joint-stock company capital instruments such as common stock. World Council issued a white paper in August regarding when credit union shares and similar capital instruments should qualify as regulatory capital under Basel III. The paper endorsed the European Union's approach to Basel III implementation.
Bill Hampel, CUNA senior vice president of research and policy analysis and chief economist, joined Branch and Michael Edwards, World Council chief counsel and vice president for advocacy and government affairs, for the meeting with Basel Committee Deputy Secretary General Karl Cordewener and Secretariat Member Noel Reynolds.
The credit union and Basel Committee representatives discussed issues such as when credit union shares have terms and conditions that make them equivalent to joint-stock company common shares; impairment of cooperative capital instrument due to losses; share redemptions when members leave a credit union's membership; and secondary capital at U.S. credit unions. The group also discussed concerns the Basel Committee raised in an October report regarding the European Union's approach to capital share redemptions under national laws and how the credit union movement could best address those concerns.
"Even though the United States does not apply Basel capital standards to credit unions, the position the secretariat takes on what constitutes capital for cooperative financial institutions could have a significant impact on the debate in Congress about supplemental capital for U.S. credit unions," Hampel said. "Crafting forms of supplemental capital that are consistent with the Basel approach should go a long way to securing congressional approval."
The Basel Committee on Banking Supervision is an international committee established by the Bank for International Settlements to formulate policy on prudential standards and best practices among financial regulators. The Basel Committee updated the Basel Accord in 2004 with Basel II and again in 2011 with Basel III. World Council advocates on behalf of credit union interests before the Basel Committee regarding international safety and soundness standards and other matters affecting credit unions that are within the Basel Committee's jurisdiction.
Download World Council's August 2012 position paper, Credit Union Shares as Regulatory Capital Under Basel III, 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 more than 290 technical assistance programs in 71 countries. Worldwide, 51,000 credit unions in 100 countries serve 196 million people. Learn more about World Council's impact around the world at www.woccu.org.