The "New" Year
Volume 10, Number 12
December 30, 2020
Advocacy News You Can Use
The end of the year is often a time to look back on the events of this past year, but it is also time to look forward to the new year. With the promise of a vaccine to provide the world with relief, it remains difficult to look back as we often do during this time of year. Don’t get me wrong, the many remarkable stories of how credit unions helped the world through the crisis is one that needs to be lauded. But many of us are ready to move past the crisis and are looking for signs that we will return to normalcy. I am optimistic for our future, but many challenges remain.
So, I offer a few forward-looking thoughts from a regulatory perspective on how 2021 might play out for credit unions. Look for the recovery to be slow, rocky and uneven. International standard setting bodies will primarily monitor ongoing economic events, but they will also look to unwind some of the relief measures (use of capital buffers, accounting relief, etc.). As forbearance and moratoriums end, look for increases in non-performing loans and recognition of bad loans. This will coincide with the withdrawal or ending of accounting relief measures. We will look closely to see how regulators deal with troubled institutions (could this lead to consolidation in the banking sector?). Also, expect regulators to encourage and embrace the acceleration of digitization that took hold during the pandemic.
Finally, I urge you to look at the G20 Leader’s Declaration which gives us insight into the regulatory agenda for the financial sector. It includes items such as reforms to payments, climate change, AML/CFT, financial inclusion and women’s empowerment.
It will certainly be a long and hard road for many next year. The good news is that there is clearly a light at the end of the tunnel. Indeed, it will be a “new” year from a regulatory perspective.
WOCCU Applauds G20 Focus on Financial Inclusion
The G20 released its Leaders' Declaration at the G20 Riyadh Summit in Saudi Arabia with a notable focus on financial inclusion. In particular, the Declaration notes that mobilizing sustainable finance and strengthening financial inclusion are important for global growth and stability. Further, the G20 also endorsed the G20 High-level Policy Guidelines on Digital Financial Inclusion for Youth, Women and SMEs prepared by the Global Partnership for Financial Inclusion (GPFI), and welcomed the 2020 G20 Financial Inclusion Action Plan, which will guide the work of the GPFI for the next three years.
WOCCU welcomes this focus on financial inclusion, noting that credit unions often play a critical role during a time of crisis, such as the COVID-19 pandemic, and providing access to responsible affordable financial products is often necessary to help protect the most vulnerable segments of society. WOCCU applauds the G20 recognition that enhancing access to opportunities for all and promoting inclusive growth will help reduce inequalities around the world.
Other items addressed by the Declaration of interest to credit unions include statements on the following topics:
- Financial Stability/Financial Inclusion;
- Climate Change;
- COVID-19 Recovery;
- AML/CFT; and
- Women's Empowerment.
A copy of the G20 Leaders' Statement can be viewed here.
Why this matters to your credit union: The G20 Leaders’ Declaration gives direction to the International standard setting bodies on their regulatory agenda for the upcoming year. This will shape upcoming regulations for the financial sector including credit unions.
Basel Provides WOCCU Advocated Relief for Non-Performing Loans
The Basel Committee on Banking Supervision amended its capital requirements for non-performing loan securtiations through a WOCCU advocated technical amendment: Capital treatment of securitisations of non-performing loans. The rule closes a gap in the Basel framework by setting out prudent and risk-sensitive capital requirements for non-performing loan securitisations.
The final rule permits banks to apply the external ratings-based approach to non-performing loans securitisation exposures, without the 100% risk-weight floor. In addition, the rule refines the definition of discount incurred by the originating bank that factors in the capital requirements.
WOCCU commented on this proposal in June, advocating for relief in connection with the securitisations of non-performing loans. The rule should make it easier and cheaper for banks and credit unions to securtise non-performing loans which will be important as institutional stress increases as a result of COVID-19.
A copy of the amendment can be viewed here.
Why this matters to your credit union: Making it easier and cheaper to securitize non-performing loans will ease the burden on addressing what is likely to be an increase in troubled assets on the books of credit unions.
FSB Sets Out Progress on Interest Rate Benchmark Reform
The Financial Stability Board (FSB) published a progress report on implementation of reforms to major interest rate benchmarks.
The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.
With only one year left, all market participants – both financial and non-financial firms across the globe – must now ensure they follow the necessary steps to avoid disruption to the performance of their contracts. For transition to occur on time, market participants will need to cease use of LIBOR as a benchmark in all new activity across global markets as soon as possible—and this needs to be a key priority for the months ahead.
The report outlines various efforts on the transition. The report can be viewed here.
Why this matters to your credit union: Transitioning from the use of LIBOR is a challenging and difficult process for many financial institutions. Monitoring regulatory developments will allow for a smoother transition.
Andrew T. Price, Esq.