WOCCU Recommended Approach Included in Finalized Basel Standard on Client Cleared Derivatives

Volume 8, Number 6
July 23, 2019

WOCCU Recommended Approach Included in Finalized Basel Standard on Client Cleared Derivatives

As urged by WOCCU, the Basel Committee revised the leverage ratio treatment of client cleared derivatives to generally align it with the standardized approach measuring counterparty credit risk exposures (SA-CCR) as used for risk-based capital requirements.

WOCCU encouraged this approach to the leverage ratio in order to help preserve community-based financial institutions’ access to interest-rate derivatives in order to hedge interest rate risk.

Continued access for credit unions and other community based-depository institutions to fair and affordable interest rate swaps and caps promotes safety and soundness by helping community-based institutions hedge interest rate risks related to fixed-rate mortgage loans held in portfolio and similar fixed-rate investments.

WOCCU continues to have concerns that the SA-CCR may itself have capital requirements for banks involved in client clearing of derivatives that are too high for credit unions and other community-based financial institutions to be able to maintain access to interest rate derivatives at fair rates and will continue to monitor this situation.

The revised standard can be viewed here.

Basel Seeks to Rein in “Window-Dressing” by Big Banks

The Basel Committee has finalised this disclosure requirement to address the issue of “window dressing” by big banks whereby they reduce their balance sheets for end-quarter reporting and end-year disclousure purposes.  This practice leads to disruptions in the lending market and possible misleading information to investors. 

WOCCU commented on this proposal noting that credit unions are cooperative depository institutions that are not publicly traded, rarely operate on a cross-border basis and do not typically engage in the “window dressing” behavior addressed by the proposal.  In fact, because members of credit unions are physical-person members and legal-person members (which are usually small and medium-enterprises), they often increase their deposits at the end of each quarter, driving their leverage ratios down for end-quarter or end-year reporting.

The final standard will likely not be applicable to most credit unions but apply to internationally-active banks and will require disclosure of quarter-end values and on average of daily values over the quarter as part of their Pillar 3 requirements, in addition to disclosure of the total leverage exposure and the leverage ratio calculated using an averaged value of securities financing transaction assets.

A copy of the standard can be viewed here.

ENCU Urges European Commission to Reduce Reg Burden on Distance Marketing Rules

The European Network of Credit Unions (ENCU) urged the European Commission to avoid duplication and overlap of the implementation of the Distance Marketing of Financial Services Directive, particularly when there are product specific directives or national-level rules governing similar conduct.  ENCU noted that often inconsistencies or additional processes required by competing regulations often lead to additional costs and expenses without any corresponding benefit to consumers. 

The comments came as part of the European Commission’s Evaluation of the EU Rules on Distance Marketing of Financial Services that sets out what information a consumer should receive about a financial service and its provider before conducting a distance contract.

A copy of the comment letter can be viewed here.


Andrew T. Price, Esq., BSACS, CUCE, CUERME
VP of Advocacy
World Council of Credit Unions (WOCCU)
99 M St., SE, Washington, DC 20003 USA
Office: +1-202-843-0704 | Mobile: +1-850-766-5699 |

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