Regulatory ‘Pendulum’ Will Continue to Swing

Financial crisis has resulted in more stringent regulatory oversight worldwide.

July 27, 2012

The recent global financial crisis has caused the pendulum of credit union regulations to continue its swing toward more stringent oversight.

But its movement can affect both credit unions and the regulators who oversee them, according to a panel of trade association leaders and regulators at the World Council of Credit Unions’ (WOCCU) World Credit Union Conference last week in Gdańsk, Poland.

The panel included CUNA president/CEO Bill Cheney (above at right); John Kutchey, NCUA’s deputy executive director and chief operating officer; David Phillips, president/CEO of Credit Union Central of Canada; Andy Poprawa, president/CEO of the Deposit Insurance Corp. of Ontario; Mark Lyonette, chief executive of the Association of British Credit Unions Ltd.; and Martin Stewart, head of U.K. Banks and Mutuals of Great Britain's Financial Services Authority.

Topics ranged from the International Credit Union Regulators’ Network to the impact of Basel III and the correct balance to properly enforce financial regulations that enable credit unions to operate both safely and effectively.

Both regulated and regulator admitted that balance was sometimes difficult to find and maintain, with a need to differentiate between complex commercial banks and consumer-focused credit unions.

“In Great Britain, we’re a small segment and we’re worried we’ll be swept up with other financial institutions,” Lyonette said. “Fortunately, credit unions are getting good political and public support.”

To some panelists, the swing away from traditional “light touch” regulations to a tougher stance raised concerns about the future of the movement.

“If we continue down the path we're on without distinction between banks and credit unions, we may end up with no local financial institutions,” Cheney warned.

“Remember that regulators don't write the rules,” Poprawa cautioned, speaking for regulators. “It’s not us you have to convince, but your respective governments.”

Regulatory impact on small, start-up credit unions also warranted discussion from the group, as did the need for directors educated in a broad range of skills to provide effective oversight.

A better educated and balanced board on which members have financial services industry experience will help keep credit unions on track, Stewart said.

“But let's not lose sight of the fact that credit union directors are elected by the members,” said Penny Reeves, a director for Canada's Servus Credit Union and a former WOCCU director, from the audience. “We can't afford to lose that democratic principle.”

Regulators on the panel agreed that credit unions got good marks during the financial crisis for helping consumers instead of turning their backs on them like many banks did. The resulting good will follow credit unions well into the future, Kutchey said.

“In the U.S., credit unions were a shining symbol of service during the financial crisis,” he said. “Bank Transfer Day also had a positive outcome for credit unions.”

Continued global advocacy by WOCCU will be critical to helping set the regulatory tone for international groups like the Basel Committee on Banking Supervision, as well as providing appropriate reference points for local regulators to better steady the regulatory pendulum from swinging too far in the wrong direction.

“In Canada, the prime minister established a body that operates on the one-to-one rule,” Phillips explained. “If you're going to draft a new regulation, you have to repeal an existing regulation that has similar financial impact. That speaks to the need for exercising some restraint on our regulatory burden.”