Credit Union Shares May Qualify as Capital Under Basel III

Permanence of funds the deciding factor, according to World Council white paper

August 13, 2012

Organization: World Council of Credit Unions
Phone: (608) 395-2000

WASHINGTON, D.C. — Credit union shares that are perpetual, nonwithdrawable and available to cover institutional losses can be considered "common equity" regulatory capital under guidelines offered by the Basel Committee on Banking Supervision's Basel III document, originally released December 2010 and reissued with revisions in June 2011. World Council of Credit Unions made the assessment in a Basel III white paper issued this week.

The white paper, Credit Union Shares as Regulatory Capital Under Basel III, addresses the circumstances in which shares issued by credit unions and similar financial cooperatives qualify as capital in systems that apply Basel III regulatory capital and liquidity protocol to credit unions.

The analysis by Michael Edwards, World Council chief counsel and vice president for advocacy and government affairs, notes that many credit union systems will not implement Basel III because the complex rules are designed for large, internally active commercial banks. However in jurisdictions that do implement Basel III for credit unions, the rules for when credit union shares qualify as regulatory capital under Basel III are of critical importance.

"As the financial services system becomes more global, credit unions in more countries fall under the local authority application of Basel III guidelines," said Brian Branch, World Council president and CEO. "A clear understanding of the opportunities and obligations under Basel III is critical for growth and service to members."

Jurisdictions such as Australia, Bolivia, Brazil, several Canadian provinces and Ecuador have previously enacted capital rules for credit unions based on Basel II and are likely to implement Basel III for credit unions as well. Basel III is also likely to influence the debate regarding the types of instruments that qualify as credit union regulatory capital even in systems that do not apply Basel III to credit unions, as in the United States.

Based on Basel III text and the European Union's approach to its implementation in Europe, World Council's analysis concludes that whether or not a credit union or cooperative share can qualify as regulatory capital under Basel III depends primarily on two factors:

  1. The degree to which capital is permanent, for example, perpetual and nonwithdrawable or withdrawable only after a significant waiting period; and
  2. Whether the instrument is paid-in and available to cover losses on a going-concern basis.

The white paper concludes that credit union shares with a high degree of permanence and the ability to absorb losses on a going-concern basis should qualify as the most desirable form of capital under Basel III, known as "Common Equity Tier 1 capital." The paper also concludes that credit union shares can qualify as other forms of Basel III regulatory capital even when they do not meet the "Common Equity Tier 1" capital definition. It urges national and provincial regulators to look to the European Union's approach to Basel III implementation if they decide it is necessary to apply Basel III to credit unions in their jurisdiction.

Download World Council's white paper, Credit Union Shares as Regulatory Capital Under Basel III, at

The Basel Committee is an international forum for cooperation on supervisory matters for internally active commercial banks and is based at the Bank for International Settlements in Basel, Switzerland. The Committee originally released its Basel III rules in December 2010 and issued a revised version of Basel III in June 2011.

World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.

World Council has implemented 300+ technical assistance programs in 89 countries. Worldwide, 68,882 credit unions in 109 countries serve 235 million people. Learn more about World Council's impact around the world at