Think Basel Rules Don’t Apply to Your CU? Think Again, Cautions WOCCU

By CUToday10.09.2017

Credit unions that have paid little attention to the Basel Committee on Banking Supervision because they don’t do business internationally will want to start paying attention, according to the World Council of Credit Unions.

The Basel Committee on Banking Supervision proposed that “simplified alternative to the standardized approach to market risk capital requirements” is the first standard to be proposed as expressly applicable to non-internationally active institutions like credit unions in the United States, according to WOCCU.   

“The committee is proposing a less complex way for depository institutions to reserve for market risks like interest rate risk for available-for-sale bonds and loans,” explained WOCCU, which has now sent a comment letter to the organization as it said it expects more such proposals from the Basel Committee will focus more on non-international institutions, including credit unions.

“It is likely that U.S. community banks will be required to adopt this Basel Committee market risk reserve approach, in which case there could be spill-over to credit unions via guidance from the Federal Financial Institutions Examination Committee (FFIEC),” said WOCCU VP and general counsel Michael S. Edwards. “The good news is that this ‘Simplified alternative’ is much less complex and burdensome than the Basel Committee’s currently less complicated market risk reserve methodology, which is the standardized approach.”

The WOCCU comment letter calls on the Basel Committee to make the following changes to reduce regulatory burdens on credit union in the final version of the standard

  • Allowing non-complex depository institutions, like credit unions, up to EUR 10 billion in assets (instead of less than EUR 1 billion in assets, as proposed) and with available-for-sale assets up to 10% of risk-weighted assets (instead of the proposed 5 percent) to utilize the Simplified Alternative
  • Lowering the amount of a credit union’s market risk reserves required by the standard
  • Treating well-capitalized credit unions that do not have a credit rating from a credit rating agency like Fitch or Moody’s as “investment grade” for purposes of counterparty risk, especially because the Dodd-Frank Act made U.S. financial regulators like NCUA remove credit ratings from their regulations

The full letter can be found here.

Reprinted with permission from CUToday.info, a leading source of news and resources for credit union decision-makers.