World Council Telegraph: Basel III and G20 Update
Volume 2, Number 6
World Council, Irish League Discuss Liquidity Rules' Impact on Credit UNions with Basel Committee Secretariat
Representatives from the World Council of Credit Unions (World Council) and the Irish League of Credit Unions (ILCU) met on September 9, 2013 with representatives from the Basel Committee on Banking Supervision Secretariat to advocate for more favorable treatment under the Basel III Liquidity rules for credit unions' deposits in banks. The Basel III liquidity rules are likely to affect credit unions around the world because credit unions' bank counterparties must be Basel III compliant even when credit unions are not subject to Basel III.
In the Republic of Ireland, early adoption of the Basel III liquidity rules has resulted in Irish credit unions' deposits at banks being reclassified from "retail" or "small business" to "wholesale funding provided by other legal entity customers." The higher cost of capital associated with "wholesale funding" has caused Irish banks to lower the yields that they pay on credit unions' term deposits from as high as 3% to as low a 0.6%.
This meeting was very productive. We are optimistic that future guidance on the Basel III liquidity rules will help resolve this issue, especially for credit unions that are subject to a regulatory rulebook which limits their non-lending investment options primarily to bank deposits and/or for credit unions which are small or medium-sized institutions that do not typically invest in higher yielding fixed-income instruments, like asset-backed securities, because of asset and liability management concerns.
For more information see World Council's news release.
Report on G20 Summit 2013
On September 5-6, 2013, the leaders of the G20 met in St. Petersburg, Russia. These meetings, held in Russia pursuant to Russia's G20 Presidency during 2013, included an update from the Financial Stability Board (FSB) concerning FSB's establishment as a legal entity and progress in implementing the G20's goals for improving global financial regulation. The G20 Leaders' Declaration also included additional updates on the G20's financial regulatory goals.
Russian President Vladimir Putin stated: "Noticeable progress has been made in reforming global financial regulation, including regulation of the banking sector - the so called Basel III standard - and in reforming over-the-counter derivatives markets. We have also seen progress with regard to systemically important financial institutions. These achievements were partly due to the fact that the Financial Stability Board was established as a fully-fledged international organization this year."
Global Legal Entity Identifier System and OTC Derivatives Market Regulation
The G20 leaders agreed that all Over the Counter (OTC) derivative contracts should be reported to trade repositories by the start of 2014.
The FSB's Legal Entity Identifier(LEI) project, which has now evolved into the Global Legal Entity Identifier System (GLEIS) administered by the Legal Entity Identifier Regulatory Oversight Committee (LEIROC), will be used to monitor OTC derivatives trades. "Pre-LEI" reporting systems are already being phased-in for OTC derivatives trading in some jurisdictions including at the Depository Trust & Clearing Corporation in the United States and at KDPW in Poland.
Although credit unions only currently need to register for an LEI number if they are engaged in derivatives trading in a jurisdiction with a "pre-LEI" system, we expect the GLEIS to expand to apply to most types of "financial contracts," such as negotiable instrument transfers and payments, within a few years.
Financial Inclusion and Consumer Protection
The G20 Leaders' Declaration supported "the progress made by the Global Partnership for Financial Inclusion (GPFI) on advancing financial inclusion and integrating consumer empowerment and protection, particularly through the establishment of the GPFI subgroup focused on Financial Consumer Protection and Financial Literacy."
The G20 Leaders' Declaration also supported implementation of the "G20 High-Level Principles on Financial Consumer Protection," which were issued in October 2011, and stated that the G20 expects to promulgate additional consumer protection principles in 2014.
The G20 agreed to a two-year roadmap to improve regulatory oversight of the "shadow banking" sector. This initiative is aimed primarily at hedge funds and other unregulated or thinly regulated financial institutions.
Under the G20 plan, the FSB, the Basel Committee, and the International Organization of Securities Commissions (IOSCO) will be issuing proposals between November 2013 and the end of 2014 regarding how to regulate hedge funds and other "shadow banks." This initiative will also set new rules regarding banks' relationships with "shadow bank" customers. The roadmap anticipates implementation of these new rules in 2015.
The G20 leaders supported the FSB's efforts to end "too-big-to-fail" through implementation of the "Key Attributes of Effective Resolution Regimes for Financial Institutions" that FSB issued in October 2011. FSB hopes to have jurisdictions implement these rules by 2015. Mark Carney, FSB Chair and Governor of the Bank of England, commented that: "The initiative to ‘end too-big-to fail' is ambitious, but essential for a more robust competitive and fair financial system."
FSB has also recently issued a consultative document on "Application of the Key Attributes of Effective Resolution Regimes to Non-Bank Financial Institutions" which is open for public comment until October 15, 2013.
"Promoting Development for All"
The G20 Leaders' Declaration also stated that "[s]upporting strong, sustainable, inclusive and resilient growth and narrowing the development gap remain critical to our overall objective for jobs and growth."
The statement specifically discussed development goals in the following areas: food security, infrastructure development, financial inclusion, human resource development, "inclusive green growth," and "domestic resource mobilization" (i.e. "strengthening tax administrations in developing countries").
For more information, see the G20 Leader's Declaration and its annexes.
Please do not hesitate to contact me if you have any questions. Thank you very much and have a nice day.
Michael S. Edwards
Chief Counsel and VP for Advocacy & Government Affairs
World Council of Credit Unions (WOCCU)
601 Pennsylvania Ave., NW, Washington, DC 20004-2601 USA
Office: +1-202-508-6755 | Mobile: +1-215-668-5240 | Fax: +1-202-638-3410
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