World Council comments on proposal applicable to U.S. CUs

October 3, 2017

The World Council of Credit Unions wrote to the Basel Committee on Banking Supervision last week suggesting changes to its proposed approach to market risk capital requirements. This is the first Basel Committee standard to be proposed as expressly applicable to non-internationally active institutions like credit unions in the United States.

Based in Switzerland, the Basel Committee is the primary global standard setter for the prudential regulation on banks and other depository institutions. Its proposed “Simplified alternative to the standardized approach to market risk capital requirements” is designed as a less complex way for depository institutions to reserve for market risks like interest rate risk for available-for-sale bonds and loans.  

While the simplified alternative is much less complex and burdensome than the current approach, it is likely that U.S. community banks will be required to adopt its approach. If this is the case, the World Council believes there could be effects on credit unions via guidance issued by the Federal Financial Institutions Examination Council.

In its comment letter, the World Council urged the following changes:

  • Allowing non-complex depository institutions, like credit unions, up to €10 billion in assets (instead of less than €1 billion in assets, as proposed) and with available-for-sale assets up to 10% of risk-weighted assets (instead of the proposed 5%) to utilize the simplified alternative;
  • Lowering the amount of a credit union’s market risk reserves required by the standard; and
  • 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.

Additional details can be found on the World Council’s blog, and the letter itself can be found here.

CUNA and the World Council  met with Basel Committee Secretary General, William Coen earlier this year, where he informed the organizations about the shift in the committee’s focus to non-internationally active institutions.