BARCELONA, Spain—The future of financial regulation will look different thanks to the effects of the current global economic crisis, according to Karl Cordewener, deputy secretary general of the Basel Committee on Banking Supervision and one of six international regulators participating in the closing panel discussion at World Council of Credit Unions' (WOCCU) World Credit Union Conference. What that future will look like, however, was the topic of lively debate during the 90-minute session.
WOCCU brought the regulators together to discuss current regulatory trends and future possibilities for different types of oversight. Viewpoints varied among the panel which, in addition to Cordewener, included Jan Engström, board member for the International Accounting Standards Board (IASB); Brandon Khoo, executive general manager for the Australian Regulatory Authority; Andy Poprawa, president and CEO of the Deposit Insurance Corp. of Ontario, Canada; George Reynolds, senior deputy commissioner for the Georgia Dept. of Banking and Finance in the United States; and Lesley Titcomb, director of the Small Firms and Contact Division and sector leader for Retail Intermediaries and Mortgages for Great Britain's Financial Services Authority. The session was moderated by Pete Crear, WOCCU president and CEO.
"One of the lessons we learned from the crisis is that financial institutions should know their customers," Cordewener said. "That's something we all can learn from credit unions because you know your members very well."
Several of the regulators cited advantages credit unions held during the crisis based on their size, the quality of their member deposit-based capital and other familiar credit union features. However, all regulators cautioned that the future of regulations would change based on hard lessons learned from the crisis.
"We have received two demands from the [Group of 20] nations," said IASB's Engström. "Reduce the complexity of financial reporting and push for global conversions. The markets are global but we are often under pressure from local regulators to favor local conditions over global systems."
Engström also referenced the positive influence several letters from WOCCU, sent to the board earlier this year, had in helping IASB better understand the issues raised by inappropriately regulating small to medium-sized institutions, including credit unions. "IASB just issued regulations for smaller institutions, and that may be our greatest contribution in helping global operations for your businesses," he said.
All participants agreed that 2008 had been a tough years for institutions and regulators worldwide. "As regulators, our job is to make sure people don't make mistakes," said Canada's Poprawa. "Sometimes we win and sometimes we lose."
Unlike other countries, Canada has about a dozen provincial regulators that focus on credit unions, Poprawa said. Canada has fared better than many other countries in the face of the crisis, but the country's smaller credit unions still face sustainability issues and the threat of mergers.
The situation in the United States is not nearly as positive according to Georgia regulator Reynolds, who also serves on the board of the National Association of State Credit Union Supervisors (NASCUS). "Last year I closed five banks," Reynolds said. "This year I have already closed 14 banks, including six banks last Friday just before leaving for Barcelona."
U.S. credit unions have found themselves awash in the country's financial crisis fueled by mortgage defaults and loan losses. However, credit unions by their nature have fared better than many of their for-profit counterparts largely due to the quality of their capital and their relative lack of involvement in commercial investments and loans. Reynolds urged participants to learn from the lessons of the past.
"Profit from the experiences of banks that didn't do it right so that you can get it right in the future," he said.
Credit unions in the United Kingdom managed to avoid major losses due largely to their lack of involvement in the commercial market and minimal role in mortgage lending, according to Titcomb. Australian credit unions faced a crisis of member confidence when an irresponsible press last year began advising consumers that smaller institutions were not safe, causing a deposit flight to the bigger banks, said Khoo. Although conditions appear to be improving, many Australian credit unions still struggle with profitability and credit quality, he added.
Several audience members raised issues with the panel, including whether regulators should be driving reform for financial conditions that less-than-stringent oversight may have had a hand in creating. Opinions differed, but all panelists agreed that regulators would be more vigilant going forward, having learned from the lessons of the past.
Opinions also differed as to whether the economy had bottomed out, a topic Crear raised with the panelists.
"That's the trillion-dollar question," said Khoo.
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, 56,000 credit unions in 101 countries serve 200 million people. Learn more about World Council's impact around the world at www.woccu.org.