MADISON, Wis.–The World Council of Credit Unions is raising some concerns around what is known as the “Principles of Bail-in Execution.
In a letter to a proposal from the Financial Stability Board, which is responsible for maintaining global financial stability related to recapitalizing troubled systemically important banks, WOCCU was generally supportive of efforts to improve the financial stability of too-big-to-fail systemically important banks, but also called on the board to make several changes in the final version of its standard to help limit the standard’s potential regulatory burdens on credit unions.
The Financial Stability Board’s proposal is available here: http://www.fsb.org/2017/11/principles-on-bail-in-execution/
Specifically, WOCCU:
- Urged the Financial Stability Board (FSB) to limit its proposed “bail-in” requirements to systemically important banks only, because some other FSB standards, such as stress testing, are sometimes applied to credit unions that are not systemically important to the financial system
- Argued that the FSB should respect credit unions’ cooperative structure and not require a change in the credit union’s ownership and control even in the event of a “bail-in,” since a change in a credit union’s ownership and control would require the credit union to demutualize and convert to a joint-stock bank
- Urged the FSB allow supervisors and institutions the option to engage more than one valuation firm to value its assets. WOCCU’s comments cited the U.S. Central FCU resolution as an example of a situation where more than one valuation opinion was engaged by credit union supervisors to establish the value of the former corporate’s legacy investments in mortgage-backed securities
- Argued that the FSB should not require community-based depository institutions to invest in computer programs that provide “highly granular” information about their assets and liabilities because these technology costs would not be a proportional regulatory burden for a credit union
- Cautioned that public communications by supervisors concerning troubled financial cooperatives should be carefully crafted so as not to cause a run on that institution or on other financial cooperatives. WOCCU pointed to the Rhode Island Share and Deposit Indemnity Corporation (RISDIC) closure in the early 1990s as an example of a public statement by regulators about privately insured credit unions and banks that led to runs on healthy, federally insured credit unions in Rhode Island
The full copy of the WOCCU letter can be found here: https://www.woccu.org/documents/preview/FSB_Principles_on_Bail-in_Execution