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Washington
World Council Seeks Basel III Carveout For CUs
WASHINGTON (10/16/13)--The World Council of Credit Unions in a new letter has asked that bank term deposits made by credit unions and similar  institutions be classified as "retail" or "small business" deposits rather than as "wholesale funding" for Net Stable Funding Ratio (NSFR) purposes under Basel III liquidity regulations.

Such a carveout could apply to federal credit unions and other institutions that are subject to very limited investment power regulations, or institutions that are less than $1 billion in assets, World Council Vice President and Chief Counsel Michael Edwards wrote in a letter to Basel Committee on Banking Supervision Bank for International Settlements Secretary General Wayne Byers.

Basel III currently defines credit union deposits at banks or other Basel III-compliant institutions as "wholesale funding," and the increased cost of capital for "wholesale" deposits has caused Irish banks to reduce the yield on terms deposits made by credit unions by 150 basis points, on average, Edwards explained. This situation has likely caused some banks in Great Britain and the U.S. to cease doing business with credit unions altogether, he noted.

"We expect significant problems for credit unions in developed countries, including possible failures and consolidation, unless the committee clarifies the NSFR so that bank term deposits made by these credit unions are considered "retail" or "small business" rather than "wholesale," Edwards wrote. And, the growing adoption of Basel III regulations could create larger issues for credit unions in developing countries, he added.

"Without clarification from the committee concerning the definition of credit union deposits under the NSFR, we believe that the trends of lower yields on credit unions' term bank deposits or closures of their bank accounts will harm potentially tens of thousands of credit unions and up to 200 million credit union members in both the developed world and the developing world. That outcome would be especially tragic for the world's 2.5 billion unbanked people as well as for the low-income and rural areas where credit unions are often the only financial institution serving the community," Edwards said.

Similar sentiments were echoed in a European Network of Credit Unions letter. For both letters, use the resource links.
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