WOCCU Meets with Head of Basel Committee
April 29, 2004
Madrid, Spain – In a final effort to ensure credit unions interests are considered in the revisions to the Basel Accord on Capital Adequacy (known as Basel II), World Council of Credit Unions, Inc. (WOCCU) president & CEO, Arthur Arnold, meet today with Mr. Jaime Caruana, chair of the Bank for International Settlements' Basel Committee on Banking Supervision and Governor of the Bank of Spain. World Council's senior manager of the trade association, Dave Grace was also part of the WOCCU delegation.
On the foot steps of the Basel Committee's last meeting to discuss calibration of the Basel II risk-based capital standard, Mr. Arnold thanked the Basel Committee for progress made in the last four years, meeting the concerns of the credit unions expressed by WOCCU.
However, the Basel Committee's latest revision of the proposed standard still generates concern for credit unions in the mortgage and consumer lending areas. Although Basel II will likely provide credit unions capital relief in these areas, it will clearly provide large banks the opportunity to further reduce capital holdings in the key products where credit unions and big banks compete.
Mr. Caruana indicated that the Basel Committee recognizes the important role that smaller financial institutions play in financial markets and is trying to help promote, rather than hurt, smaller institutions. He also conceded that on the surface Basel II seems counter intuitive in that larger, more complex institutions presenting more systemic risk to financial systems, will receive greater reductions in capital than smaller financial institutions that present less systemic risk. Nonetheless, Mr. Caruana indicated that economic capital requirements, more so than regulatory capital requirements, seem to impact the pricing of products by banks.
Citing results of Basel Committee's own impact studies, Mr. Arnold indicated, "While credit unions subject to Basel II may see a 20 percent reduction in the capital needed to be held against mortgages, large banks will see at least a 50 percent reduction in the average capital needed for mortgages." Mr. Arnold continued, "It's hard to believe this will not impact the pricing of mortgages that big banks can offer." Mr. Caruana indicated that the next paper on Basel II would be released in June 2004. National level regulators will be encouraged to conduct impact studies of Basel II during 2005 and the new and old Accords will be tested in a parallel mode in 2006 with full implementation in 2007.
WOCCU received assurances that the Basel Committee would feel obligated to make changes to Basel II prior to its full implementation if data gathered during 2005 and 2006 demonstrates that smaller financial institutions will be disadvantaged from Basel II. In addition, WOCCU learned that the Basel Committee is working closely with the International Monetary Fund to ensure the new Accord is not forced on developing countries.
The Basel Accord on Capital Adequacy is the global standard for bank and credit union regulators which define how much capital on risk- weighted basis financial institutions are required to hold. The current Basel Accord (know as Basel I) was established in 1988 and has been adopted by financial institution regulators in over 100 countries including credit union regulators in Australia, four provinces in Canada, and parts of Latin America. The National Credit Union Administration in the United States had indicated a willingness to move towards a risk-weighted capital requirement analogous to Basel. WOCCU has been working with the Basel Committee on the revisions to Basel I since 2000.
For more information about WOCCU and The Basel Capital Accord, visit http://www.woccu.org/lrac/index.ph p?pid=2.
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 more than 290 technical assistance programs in 71 countries. Worldwide, 60,500 credit unions in 109 countries serve 223 million people. Learn more about World Council's impact around the world at www.woccu.org.