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WOCCU CUs should not be penalized
AMSTERDAM, The Netherlands (4/24/09)--Credit unions should not be penalized by tougher capital requirements than those faced by larger, riskier institutions that present systemic risk to the global financial system, Pete Crear, president/CEO of the World Council of Credit Unions (WOCCU), told the Basel Committee on Banking Supervision. Crear and Dave Grace, WOCCU vice president of association services, met with Basel Chairman Nout Wellink April 15. The visit followed three letters WOCCU sent to the Basel Committee regarding proposed rules on stress-testing procedures and capital level requirements. The committee believes that increased capital reserves are necessary to foster greater global resilience to future episodes of economic and financial stress, and has made a series of recommendations for increasing reserves by 2010, WOCCU said. “We didn't want credit unions and financial cooperatives to pay an unfair price as part of the solution to a crisis they had no hand in making,” Crear said. “Chairman Wellink was very receptive to our comments and assured us that he would bring our concerns forth to his fellow committee members.” In some cases, the proposed standards for credit unions exceed levels required for large, complex banks, which prompted WOCCU to call for a “rebalancing” of inconsistencies. WOCCU addressed these issues in a fourth letter it sent to the committee after last week's visit. Cooperative financial institutions play a vital role, not only in serving the financial needs of 857 million consumers worldwide, but by spreading economic risk over a greater number of institutions, WOCCU said. By contrast, existing industry risk-modeling standards have failed to keep large banks from hemorrhaging losses that have fed the global economic downturn. Smaller institutions, especially member-owned financial cooperatives, hold smaller concentrations of funds, strengthening the global financial network by reducing the risk each institution poses, WOCCU added. “We want to ensure at the implementation of these rules that financial supervisors recognize that credit unions are different from banks,” Grace said. Under Basel II guidelines, larger financial institutions may hold comparatively less capital than smaller institutions. However, the current crisis has shown that many larger institutions are riskier and prone to greater systemic problems. Failure to rebalance capital requirements within Basel II to appropriate levels will potentially weaken smaller institutions. Fair capital requirements for institutions of all sizes not only aid financial cooperatives' operating capabilities, but they strengthen the soundness and stability of the international banking system, WOCCU added. “Chairman Wellink told us the pendulum was swinging toward more stringent regulation and expressed concern that it may swing too far,” Crear said. “We've offered WOCCU as an information resource on financial cooperatives to the committee in hopes of keeping credit unions from being unfairly penalized for the current situation.” To read the letters, use the link.
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