MADISON, Wis.–The World Council of Credit Unions is objecting to a plan that recommends the best way to resolve financially weak credit unions and other co-ops is to simply demutualize them.
The letter was sent to Switzerland-based International Association of Deposit Insurers in response to a draft research paper, Resolution Issues for Financial Cooperative: Overview of Distinctive Features and Current Resolution Tools, which urges numerous changes to the hierarchy of tools available for resolution of a troubled credit union.
The letter, written by Michael Edwards, VP and general counsel with WOCCU, states that, "[m]aintaining the availability of cooperative financial services to ordinary physical persons and small and medium enterprises (SMEs) is important for promoting financial inclusion in all types of communities, especially rural districts and poor urban areas that are underserved by commercial banks because of a perceived lack of profitability.”
WOCCU is calling for the following changes to the draft research paper:
- Demutualization should be a last resort for resolving financial cooperatives, i.e. used only when a business combination with another financial coop is not possible
- Mergers or purchase and assumption transactions with another financial coop should be the preferred resolution method
- The Association’s paper should be updated to include recent Basel Committee, Canadian OSFI, and EU capital rules for financial coops which have increased financial coops ability to recapitalize
- Supervisory tools available before the point of non-viability, such as net worth restoration plans, should be emphasized
“Placing demutualization as the first discussion part of this paper implies that demutualization is the Association’s preferred methodology for resolving financial cooperatives,” Edwards wrote. “While we recognize that occasionally a financial cooperative may be too large for another financial cooperative in the jurisdiction to absorb, these cases are rare and typically limited to systemically important institutions.”
The full text of the letter can be found in CUToday.info’s The Vault here.