Where's the Certainty?
Volume 10, Number 6
June 24, 2020
Advocacy News You Can Use
The Basel Committee met earlier this month to discuss the impact of COVID-19. And yes, they addressed many of the items that one would expect during this time of crisis. A summary of the key points from the discussion are as follows:
- Highlighting that financial Institutions and supervisors must remain vigilant to the risks and vulnerabilities stemming from the pandemic to ensure the global banking system remains financially and operationally resilient;
- Ensuring financial institutions absorb losses during this time of stress without breaching minimum requirements;
- Maintaining the flow of credit to the real economy in the downturn by lending to creditworthy businesses and households; and
- Their main priority is using capital resources to support the real economy and absorb losses at the present time.
While many of these principles at the philosophical level are quite appropriate, the real uncertainty comes from how a national level supervisor will apply these principles toward credit unions. What will they do? And how will they actualize laws and regulations to achieve these high-level philosophical goals?
It is worth noting that during the discussion, the Basel Committee struggled with the fact that the impact and response across jurisdictions and the global economic outlook remains quite uncertain. The certainty we all seek appears to be elusive. If the Basel Committee is having difficulty, then certainly the rest of us are as well.
Therein lies the challenge of dealing with uncertainty. The key for credit unions is to remain ever vigilant and to focus on those things we can control. For credit unions, that starts with people helping people, something I am certain will happen.
A copy of the Basel Committee press release can be viewed here.
WOCCU, ENCU Call for COVID-19 Regulatory Relief
World Council of Credit Unions (World Council), the European Network of Credit Unions (ENCU), and the European Union Credit Union Parliamentary Interest Group (EUCUPIG) in two separate letters called for regulatory relief to allow credit unions in the European Union to play a critical role in the response to the COVID-19 pandemic. Credit unions have a history of providing critical services through disasters, emergencies and other disruptions by providing direct assistance to their members.
With proper regulatory relief, credit unions have the ability to advance financial inclusion during the pandemic. These community-based cooperatives provide services to households, SMEs and vulnerable groups that face a number of obstacles in accessing credit, particularly during this crisis.
This call for regulatory relief came in a series of letters—with the ENCU letter signed by five Members of the European Parliament (MEPs) who are also members of the EUCUPIG:
- MEP Billy Kelleher (Co-Chair of EPCUIG - Ireland)
- MEP Paul Tang (Vice-Chair of EPCUIG – The Netherlands)
- MEP Frances Fitzgerald (Ireland)
- MEP Barry Andrews (Ireland)
- MEP Caroline Nagtegaal (The Netherlands)
Why this matters to your credit union: This letter was signed by MEPs across the 3 major political parties in the European Union. This demonstrates non-partisan support from the EU to allow credit unions to have proper tailoring for laws and regulations to provide COVID-19 relief for citizens. This will further help provide incentive for national-level regulators to move forward and adopt regulatory relief.
WOCCU Comments on IASB’s Classification of Liabilities as Current or Non-current
WOCCU responded to the International Standards Accounting Board’s (IASB) requested comments on their Exposure Draft Classification of Liabilities as Current or Non-current—Deferral of Effective Date Proposed amendment to IAS 1. In January 2020, due to Covid-19 pandemic interferences, the IASB proposed a deferral to the amendments for IAS 1 Presentation of Financial Statements, moving the annual reporting periods to the January 1, 2023 (or later).
WOCCU expressed its concurrence with the deferral, emphasizing the necessary operational relief the deferral would provide to credit unions suffering from pandemic pressures “that could delay the implementation of any changes in classification resulting from the application of these amendments and… the pandemic will delay the ability of a credit union to start and extend the duration of the renegotiation of loan covenants.”
WOCCU’s full response to the IASB’s Exposure Draft can be found here.
Why this matters to your credit union: This will provide a one-year delay in the implementation of an accounting standard, providing direct regulatory relief for a credit union during the COVID-19 pandemic. It also allows national-level regulators to postpone compliance with the new standard to a later date.
BIS Issues Report on Central Bank's COVID-19 Responses
The Bank of International Settlements (BIS) Issued a report on the central banks' response to the COVID-19 in advanced economies.
Key takeaways from the report area as follows:
- Central banks in advanced economies reacted swiftly and forcefully to the COVID-19 pandemic, deploying the full range of crisis tools within weeks. The initial response focused primarily on easing financial stress and ensuring a smooth flow of credit to the private non-financial sector;
- The pandemic triggered complementary responses from monetary and fiscal authorities. Fiscal backstops and loan guarantees supported central bank actions. Asset purchases, designed to achieve central banks’ objectives, helped contain the costs of fiscal expansions; and
- The footprint of central banks’ measures will be sizeable. Across the five largest advanced economies, balance sheets are projected to grow on average by 15–23% of GDP before the end 2020 and remain large in the near future.
A copy of the report can be viewed here.
Why this matters to your credit union: This highlights the differences in responses from central banks to the COVID-19 crisis and provides insight into the forward thinking of the central banks. This is useful for purposes of planning for regulatory responses to the crisis.
Andrew T. Price, Esq.