WASHINGTON (2/6/15)--A proposed framework from the Financial Stability Board (FSB) that would attempt to eliminate the implicit public subsidy enjoyed by global systematically important banks (G-SIBs) has the general support of the World Council of Credit Unions.

World Council's comment, however, voiced its opposition to the potential application of the FSB's proposed G-SIB "bail-in" rules  to credit unions.

The FSB, an international body that monitors and makes recommendations about the global financial system, released a consultative document in November regarding proposals to enhance the loss-absorbing capabilities of G-SIBs by requiring them to issue debt to external investors that could absorb losses if a G-SIB were to become critically undercapitalized.

This FSB "Total Loss Absorbing Capacity" (TLAC) approach would allow a bank to be "bailed-in" by its creditors without needing equity injections from government actors.

The document says that global systematically important banks must have sufficient loss absorbing and recapitalization capacity available in resolution to implement an orderly resolution that minimizes any impact on financial stability, ensures the continuity of critical functions, and avoids exposing taxpayers to loss.

G-SIBs would be expected to issue debt obligations to external creditors that have more than a one year duration in order to meet this requirement. These debt instruments would have to be convertible to equity in the event of losses, or would have to be written down permanently.

"World Council is generally supportive of the proposed framework's goal of eliminating the implicit public subsidy enjoyed by global systemically important banks," reads the letter, sent by the World Council Monday. "Applying these Total Loss Absorbing Capacity (TLAC) rules to non-G-SIBs, however, will not achieve that objective because they are not beneficiaries of any such implicit subsidy."

"Credit unions are not generally regarded as G-SIBs and typically have much less risky and less complex operations than commercial banks," the letter reads.