Celebrate the Credit Union Story!
Volume 10, Number 9
September 30, 2020
Advocacy News You Can Use
International Credit Union Day is coming up on October 15 this year. This year’s theme is—“Inspiring hope for a global community.” The focus reflects how all credit unions can contribute to a brighter future by providing financial empowerment to people all over the world through financial services, education and support. Many of you are preparing celebrations and numerous events to tell your story and raise awareness about what it means to your members to have access to a financial partner—and how the cooperative model uniquely serves their needs.
I would urge you, however, to consider taking this a step further and invite your regulator to either participate or at least make them aware of your activities on October 15. What many of you have done during the global health crisis this year, helping your communities and addressing the economic uncertainty, is quite remarkable. From an advocacy perspective, by including regulators in your celebrations, it helps connect the dots to why properly tailoring regulations and allowing you to fulfill your potential as a credit union should be the paramount goal of public policy. So please, celebrate your story and include your regulator! It matters!
WOCCU Present at FSB Workshop on Too-Big-To-Fail Reforms
The World Council of Credit Unions was present at a workshop held by the Financial Stability Board (FSB) which discussed the effects of the post-crisis financial reforms and an evaluation of the "too-big-to-fail" (TBTF) reforms for banks. The FSB is in the process of finalizing the results of its evaluation and is allowing input from stakeholders as part of the process.
In particular, the workshop focused on the market perceptions of the credibility of the TBTF reforms, banks' responses to those reforms and the broader effects of the reforms. Although these reforms focus on issues affecting Global Systemically Important Banks (GSIBs) and Domestic Systemically Important Banks (DSIBs),
WOCCU continues to be concerned that regulatory proposals adopted for these entities often are applied to smaller financial institutions such as credit unions without proper proportional tailoring (i.e. "goldplating"). Further, the reforms sometimes have the effect of displacing credit unions in the market and make access to capital markets, bank services and correspondent banks more difficult due, in part, to the complexity of the TBTF reforms.
Why this matters to your credit union: Many of the principles of the “too-big-to-fail” reforms filter down to credit unions even though they are designed to address issues unique to large banks and are not appropriate for credit unions. Ensuring that those reforms remain applicable only to the large banks helps to ultimately reduce regulatory burden for credit unions
ENCU Urges EBA to Address De-risking
The European Banking Authority (EBA) called for input to understand the impact of de-risking on financial institutions and customers. The European Network of Credit Unions responded to the EBA’s directed questions and highlighted that credit unions are often the subject of de-risking by banks. Reasons for this include:
- perceived regulatory burden and risks associated with AML/CFT requirements and the potential to eat into profits;
- confusion surrounding responsibility associated with AML/CFT requirements;
- and conflicting privacy standards in various countries creating difficulty navigating cross-border operations.
ENCU noted that de-risking has reduced access to bank services, causing credit unions to seek these services from second- and third-tier banks. This has proven to be costly and burdensome, and therefore a deterrent to the provision of these services to its members.
ENCU’s comment letter to the EBA regarding the impact of de-risking on financial institutions can be found here.
Why this matters to your credit union: Access to correspondent banks is important to allow for easier access to the payments systems and to investment services and sources of liquidity. De-risking, brought on often by excessive regulations, limits access for credit unions.
WOCCU Urges Further Relief from Basel on NPL Securitisations
WOCCU supported the Basel Committee on Banking Supervisions Technical Amendment: Capital Treatment of Securitsations of Non-Performing Loans (NPL), but urged it to go further and consider the amendments made in the European Union by the European Banking Authority in its opinion on the Capital Requirements Regulation (CRR) and the European Securitisation Regulation (ESR). Removing impediments to securitisations of NPLs should result in the freeing up of regulatory capital reserves, which in turn will increase liquidity in the market. This will be important as the number of NPLs is likely to increase as the effects of the COVID-19 pandemic continue. WOCCU urged Basel to consider those items adopted in the EU on NPLs.
A copy of the comment letter can be found here.
Why this matters to your credit union: Non-performing loans will likely increase as a result of the effects of the COVID-19 pandemic. The ability to remove them from a credit union’s books will assist in freeing up capital reserves and help main stability in a credit union.
Andrew T. Price, Esq.