MADISON, Wis.–The World Council of Credit Unions is calling on the Basel Committee on Banking Supervision to make the use of daily averages in leverage ratio disclosures optional for non-complex depository institutions, such as credit unions and other community-based mutual depository institutions, that follow standardized risk-based capital rules.
In a letter commenting on the committee’s consultative document “Revisions to Leverage Ratio Disclosure Requirements, WOCCU said it understands the impetus for this proposal—"especially when internationally active, publicly traded banks reduce their balance sheets to engage in ‘window dressing’ for end-quarter and end-year disclosure purposes that have obvious macroeconomic effects and provide misleading information to investors”—but credit unions are cooperative depository institutions that are not publicly traded, rarely operate on a cross-border basis, and do not typically engage in such behavior.
“We are concerned that mandating the use of daily averages in disclosures issued by community-based depository institutions following standardized risk-based capital approaches may result in disproportionate reporting burdens on non-complex institutions,” WOCCU wrote. “We do, however, support community-based depository institutions having the option to use daily averages for reporting purposes. Our members report that, in general, using daily average net assets or similar daily averages for disclosure purposes would typically result in their reporting higher leverage ratios, not lower ones.”
How CUs Differ
WOCCU explained that credit unions have physical-person members and legal-person members that are usually small and medium-enterprises and which often increase their deposits at the end of each quarter, which drives these institutions’ leverage ratios down for end-quarter or end-year reporting purposes.
“While our members would like to have the option to report their leverage ratios using daily averages for that reason—i.e. because community-based depository institutions using daily averages typically results in their reporting higher leverage ratios rather than lower ones—we are concerned that the computer system upgrades necessary to track daily averages could result in disproportionate compliance costs, especially in the case of small credit unions. Worldwide, the average credit union is approximately $24 million in total assets,” WOCCU added.
The trade group noted some prudential regulatory agencies are proposing to limit compliance burdens on community-based depository institutions by only requiring the use of average assets for calculating the leverage ratios of complex banking institutions, or have already adopted such an approach.