April 2009 / Issue 5
Australia: Credit Unions and Building Societies: A Sure Footing
The Reserve Bank of Australia's (RBA) latest Financial Stability Review shows that credit unions and building societies are better capitalized than banks and have lower non-performing loan ratios than banks.
The credit union sector has an aggregate capital ratio of 16.25% and the building society sector's ratio is 14.5%, compared to the banks' ratio of 11.4%. Non-performing housing loans for credit unions comprise 0.1%, while the figure for building societies is 0.3% and 0.48% for banks.
"These are very strong fundamentals and they set us up well to manage in challenging times," said Louise Petschler, CEO of Abacus-Australian Mutuals, WOCCU's Australian member organization. "The RBA's Financial Stability Review shows how the major banks have increased their market share of new owner-occupier home loans to 82%, a 20% increase from mid 2007, as wholesale lenders have exited the market. The major banks have been gaining market share and swallowing up regional banks. Credit unions and building societies have become even more important to maintaining a competitive retail banking market," Petschler said.
In a recent submission to an Australian senate inquiry into bank mergers, Abacus made the following recommendations to promote the capacity of credit unions and building societies to continue providing effective competition and choice:
Promote public understanding of the prudential regulatory framework and the status of mutual Authorized Deposit-taking Institutions (ADIs);
Amend anti-competitive aspects of the government's optional guarantee for high value deposits;
Engage policy-makers with mutual ADI sector aggregators to improve access to wholesale funding, and weigh up new regulatory proposals against the need to reduce the regulatory compliance burden on mutual ADIs.
Source: Abacus - Australian Mutuals, www.abacus.org.au
Canada: Impact of the Global Financial Crisis Has Been Relatively Mild
To date, the impact of the global financial crisis has been relatively mild. Canadian credit unions have been able to manage the downturn and continue to lend to their members. The credit union system experienced a healthy 7.3% loan growth in 2008. Some signs of stress are emerging in the consumer credit and mortgage markets, but these appear manageable under current conditions.
Source: CUCC, www.cucentral.ca
Great Britain: HM Treasury Working on Legislation that will Transform the British Credit Unions
The British government has been in consultation with the country's national credit union association regarding potential legislation that could have substantial transformative effects for the British credit union movement. Although delayed due to the wider economic situation, the government's proposal will be published imminently.
The Association of British Credit Unions (ABCUL) has been in constant contact with Her Majesty's Treasury—the department responsible for this process—and is assured that the final proposal will closely resemble the recommendations put forward by the British credit union movement.
Allowing credit unions to serve a wider range of people by liberalizing common-bond requirements, adding the ability to pay interest on deposits and opening up services to groups and corporate bodies are among key reforms that will enable British credit unions to dramatically increase their member-service capacity.
The Financial Services Authority, which regulates British credit unions, will consult on regulatory reforms once the legislation has been published. ABCUL hopes this process will be completed by October 2009.
Source: ABCUL, www.abcul.org
Ireland: Credit Unions in Northern Ireland Could Be Regulated by London-based Financial Services Authority
In a recent report, the Enterprise, Trade & Investment (ETI) Committee of Northern Ireland's Stormont Assembly recommended that the regulation of the country's credit unions be undertaken by the London-based Financial Services Authority (FSA), which also regulates Great Britain's credit unions, while the registration function remains within the Department of Enterprise, Trade & Investment in Belfast.
The recommendation by the ETI Committee is supported by the Irish League of Credit Unions (ILCU) and will achieve parity between the services available to credit union members in Northern Ireland and those currently available in Great Britain and the Republic of Ireland.
Her Majesty's Treasury will soon report on its own inquiry into credit unions in Northern Ireland. It is anticipated that the Treasury report will comment on the recommendations of the ETI Committee.
Source: ILCU, www.creditunion.ie
New Zealand: Government Introduces New Deposit Guarantee System that Encompasses Credit Unions
Government Deposit Guarantee program was recently implemented as a mechanism to restore faith in the New Zealand banking system, a reaction to the international financial crisis and a multitude of finance company collapses in New Zealand. Extensive government reporting is now required from financial institutions approved to be part of the program, including credit unions and other deposit-takers.
During 2008, new legislation covering all deposit-taking institutions was passed by way of amendment to the Reserve Bank of New Zealand (RBNZ) law of 1989. The reforms mean that the RBNZ is now the prudential regulator for credit unions and other deposit-taking institutions, including building societies and finance companies. Throughout 2009, discussion papers will be released by the RBNZ for comment and regulations will be implemented. Papers have already been released regarding capital requirements, related party requirements, and the type of credit ratings that should be applied. Further papers on liquidity requirements and exemption levels for credit ratings are expected in the near future.
Extensive legislation intended to combat money laundering is also due to be introduced in 2009. In addition, the government is reviewing insolvency provisions, specifically regarding personal insolvency; guidelines for credit fees; and a review of disclosure obligations for issuers.
2009 and 2010 will undoubtedly be challenging years for New Zealand credit unions as they seek to address new compliance requirements.
Source: NZACU, www.nzacu.org.nz
Poland: Credit Unions Included in Recent Law on Government Support to Financial Institutions
Late last year Poland's Parliament began work to update the 1995 Credit Union Act, and some of those changes may affect credit unions' regulatory structure. Currently, the Polish credit union system is self-regulating under the authority of the National Association of Co-operative Savings & Credit Unions (NACSCU). Recent dialogues between NACSCU and the state regulator indicate that a change to the current system will likely be reflected in the new act.
NACSCU, a WOCCU member organization, was Poland's first financial organization to raise deposit-level guarantees to €50,000 in response to recommendations by the European Commission. NACSCU has also started discussions with the State Guarantee Fund to determine ways to make the two systems more coherent and compatible for the benefit of credit union members. The State Guarantee Fund is the banking sector's deposit guarantee mechanism and is not available to credit unions, which operate their own Stabilization Fund.
The Ministry of Finance has recently included credit unions in its February 12 Law on Treasury Support to Financial Institutions. The law stipulates that liquidity and other support mechanisms shall be made available to credit unions and banks on equal terms. As healthy, growing institutions, solid and fully solvent, Polish credit unions were not included in the Law on Recapitalization regarding partial or complete nationalization for some troubled financial institutions in the country.
Source: NACSCU, www.skok.pl
United States: Regulator Places Two Largest Corporate Credit Unions Under Governmental Conservatorship
On March 20, 2009, the National Credit Union Administration (NCUA) seized the two largest wholesale credit unions (known as "corporate credit unions") in the United States and placed them under a form of government control known as "conservatorship." NCUA placed U.S. Central Federal Credit Union (U.S. Central) and Western Corporate Federal Credit Union (WesCorp) into conservatorship because the agency believes that the mortgage-backed securities held by these institutions may suffer significant credit losses in the future. NCUA's estimates of possible future losses are in large part based upon a report prepared by NCUA's contractor, the Pacific Investment Management Company, LLC, commonly known as PIMCO.
As a result of PIMCO's report and the U.S. Central and WesCorp conservatorships, NCUA has increased its deposit insurance premium and associated costs to U.S. federally-insured credit unions to an aggregate $5.9 billion dollars from the $4.7 billion figure that the agency announced in January. Per credit union, these costs will total approximately 99 basis points relative to each federally-insured credit union's insured shares unless NCUA reconsiders its future loss estimates or the U.S. Congress amends the Federal Credit Union Act to allow the loss to be absorbed over multiple years.
For more information about NCUA Corporate Stabilization Program, visit www.ncua.gov/CorporateStabilizationProgram.html
Source: CUNA, www.cuna.coop
World News: Credit Union Regulators From Around the Globe Will Convene July 30-31 in Barcelona, Spain
Credit union regulators from 20 countries across six continents are expected to come to Barcelona, Spain, July 30-31, 2009, for the seventh annual Credit Union Regulators' Roundtable to be held at the Barcelona International Convention Centre. The invitation-only roundtable immediately follows WOCCU's World Credit Union Conference, scheduled to be held at the Centre July 26-29.
This two-day event convenes regulators from both mature and developing credit union systems to exchange ideas and regulatory best practices. This year's agenda focuses on regulating in troubled times. Keynoter Karl Cordewener, Deputy Secretary General of the Basel Committee on Banking Supervision, will lead discussion on the latest regulatory changes emanating from the Committee. For more information on the Regulators' Roundtable please visit the following link: www.woccu.org/involved/regnet.
Information about the WOCCU's 2009 conference in Barcelona may be found at: www.woccu.org/Barcelona09.
Source: WOCCU, www.woccu.org
World News: Model Regulations for Credit Unions Published in Russian
To download a copy of the Model Regulations please visit: www.woccu.org/bestpractices/legreg