World Council calls for proportionality on stress testing

World Council calls for proportionality on stress testing

March 26, 2018

The World Council of Credit Unions (World Council) has filed a letter urging the Basel Committee on Banking Supervision to adopt the principle of proportionality for stress testing of credit unions in order to limit regulatory burden. 

World Council’s comments argued that existing stress testing approaches have imposed disproportionate compliance costs on credit unions and other non-complex financial institutions.  The letter points to the NCUA’s regulation on stress testing as well as the agency’s proposed stress testing rule which, if finalized, would raise the asset threshold for the stress testing of federally insured credit unions to $20 billion in assets from $10 billion in assets today.

“While we acknowledge and agree that stress testing is an important regulatory and management tool—particularly for systemically important financial institutions (SIFIs) and complex international banks—its usefulness, and corresponding regulatory burden and costs for smaller non-systemically important credit unions becomes questionable, particularly those that are only involved in deposit taking and simple retail consumer lending,” the letter states.

“As such, these principles should be implemented in accordance with the principle of proportionality such that the supervisory practices are commensurate with the risk profile and systemic importance of the supervised entity being supervised.”