BASEL, Switzerland (9/12/13)--Representatives from the World Council of Credit Unions and the Irish League of Credit Unions (ILCU) met Monday 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.
|World Council of Credit Unions' and Irish League of Credit Unions' (ILCU) representatives visiting the Basel Committee on Banking Supervision Secretariat included, from left, Ed Farell, ILCU head of finance; Kieron Brennan, ILCU CEO; Martin Sisk, ILCU president; and Michael Edwards, World Council vice president and chief counsel. (Photo provided by the World Council of Credit Unions)|
Although credit unions are not subject to the liquidity rules, the rules will likely affect credit unions worldwide because credit unions' bank counterparties must be Basel III compliant and have told Irish credit unions that their deposits are classified as a form of "wholesale funding" that requires the banks to hold extra reserves under Basel III.
World Council Vice President and Chief Counsel Michael Edwards and ILCU's CEO Kieron Brennan, President Martin Sisk and Head of Finance Ed Farrell met with Basel Committee Deputy Secretary General Karl Cordewener and Neil Esho, a senior member of the Secretariat.
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," even though Irish credit unions did not withdraw their deposits from banks during the global financial crisis as the wholesale funding provided by other legal entity customers" classification assumes would occur during a stress period.
Irish banks have cited the increased cost of capital related to deposits that are "wholesale funding provided by other legal entity customers" as a reason to reduce the interest that they pay on credit unions' deposits from as much as 3% a year to as low as 0.6%. This reduction in yields will likely cost Irish credit unions about $79.9 million or more a year in lost interest income, unless European Union regulators clarify and grant credit unions more favorable treatment. Credit unions in other jurisdictions may experience a similar drop in yields on their bank deposits as Basel III is phased in. (See Related News Now story, "CUs' European Network, EU Policymakers Talk Basel; FACTA, Inclusion").
"We will continue to engage international standard setting bodies at all levels until this matter is resolved in a way that allows credit unions to carry on their financial inclusion mission," said World Council President/CEO Brian Branch.
World Council also has brought the credit union movement's concerns about the Basel III liquidity rules to the attention of the European Banking Authority (EBA), the European Commission, the European Parliament, the Consultative Group to Assist the Poor and the World Bank.
In August, the European Network of Credit Unions--which is composed of World Council's European Union members, including ILCU--filed a comment letter with the EBA urging the agency to clarify that credit unions' deposits in banks should be placed in a category other than "wholesale funding provided by other legal entity customers."