The Spirit of Cooperation
Volume 10, Number 8
August 26, 2020
Advocacy News You Can Use
There was a credit union CEO who—after 42 years working in the credit union movement—decided to retire. He had certainly earned this right, having stood on the lawn in Washington, D.C. in 1998 to insist on the passage of H.R. 1151, which helped save the credit union system in the United States, and more importantly, growing his credit union into a pillar of the community.
He was a mentor of sorts to me, allowing me to observe him skillfully manage his credit union, work the halls of Congress and the State Legislature to better the regulatory framework, and more importantly, serve his members and community. A well-respected banker lobbyist, one who had worked fastidiously to diminish the credit union movement, towards the end of his career, took my mentor aside and told him that he was sorry to see him retire and that the contribution his credit union made to the community was incredible—perhaps the highest praise that could ever come from the “opposition.” I knew to pay close attention to my mentor’s words and conduct if I wanted to be successful in the industry.
During his retirement speech in 2010, he touched on the cooperative principles for credit unions:
- Voluntary Membership;
- Democratic Member Control;
- Members’ Economic Participation;
- Autonomy and Independence;
- Education, Training and Information;
- Cooperation Among Cooperatives;
- Concern for Community.
But what I remember most in his speech was an aside he took where he raised particular concern over the level of cooperation among credit unions (Item 6), remarking that he believed we, as an industry, were losing some of that cooperative spirit and culture, and that perhaps our competitiveness was overtaking that principle. I vividly remember him raising concern and knew I must keep an eye on that sentiment moving forward.
Although COVID-19 presents us with numerous problems, I am pleased to say that spirit of cooperation is still alive and well. Credit unions around the world from Asia, Africa, Latin America, Australia, U.S., Canada and the EU are all coming together on Zoom calls with their regulators, with their trade associations, with their vendors to find solutions and to help each other through these challenging times. And many more of these virtual information exchanges are still in the works. It’s what is helping us make it through this crisis. Let’s keep it going!
FSI Reports on COVID-19 Supervisory Challenges
The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) issued its report on the prudential response to debt under COVID-19: the supervisory challenges. The highlights of the report are as follows:
- In response to the COVID-19 pandemic, governments and banks have introduced public guarantees and payment deferrals to support struggling borrowers, while the Basel Committee on Banking Supervision (BCBS) and national authorities have provided guidance on how these relief measures should be considered in assessing credit risk in prudential frameworks.
- The regulatory relief measures introduced by the BCBS provide banks with flexibility in supporting the real economy. But they also raise supervisory challenges that become more pronounced the longer the relief measures remain in place, particularly if credit risks continue to mount on bank balance sheets.
- The greatest challenge for all prudential authorities is to decide how and when to exit from these regulatory relief measures. Acting too early may remove much needed credit to support economic growth, while waiting too long could undermine confidence in the post-crisis regulatory regime and heighten systemic risks. Making the right calls at the right time will require judgment.
A copy of the report can be viewed here.
Why this matters to your credit union: It is important to pay attention to relief items coming out of the regulators. This helps your credit union to know what items are available for relief to help with your COVID-19 response, but also to help with advocacy at the national-level for those items that have not yet been adopted by the prudential regulator.
Basel Committee Consults on Operational Resilience
The Basel Committee on Banking Supervision (Basel Committee) issued a consultative document seeking input on its principles-based approach to improving operational resilience. The principles aim to strengthen the ability of financial institutions to withstand operational risk-related events which could cause significant operational failures or wide-scale disruptions in financial markets, such as pandemics, cyber incidents, technology failures or natural disasters.
While the principles-based approach endeavors to allow a proportional approach, WOCCU will encourage the Basel Committee to make sure this principle is clearly stated in the document together with clear direction to national-level prudential regulators to implement proportionality.
A copy of the consultation can be viewed here.
Why this matters to your credit union: Requirements for operational resilience are an evolving and ongoing process. Ensuring that the approaches are risk-based and include direction for proportionality will ensure that unnecessary regulatory burden is not imposed on a credit union.
IADI Includes Proportionality Principle in Risk Management Guidelines
The International Association of Deposit Insurers (IADI) asked for public comment on their Guidance Paper, ‘Risk Management and Internal Control System of Deposit Insurers.’ The paper provided ten guidance points to address risk management in deposit insurers (DIs). Most notably, the paper included guidance points based on the principle of proportionality and additionally provided suggestions for minimum requirements more appropriate for smaller DIs. WOCCU commented on the paper and stated its support for IADI’s proportional-based guidelines and further requested clear and direct guidance on proportionality, so that national regulators have the green light to properly tailor regulations to smaller financial institutions such as credit unions.
WOCCU’s comment letter in response to IADI’s above referenced Guidance Paper on risk management can be found here.
Why this matters to your credit union: Risk management by deposit insurers often results in additional regulatory requirements for credit unions. Ensuring that the principle of proportionality is included in the guidance allows for proper tailoring and rightsizing of those requirements for credit unions (reducing regulatory burden).
Andrew T. Price, Esq.