MADISON, Wis.–The World Council of Credit Unions told the Basel Committee on Banking Supervision it supports NCUA having discretion to NOT apply interest rate risk-rules to credit unions.
In a letter sent in response to a proposal by the Basel Committee that would give financial regulators such as NCUA the discretion over whether or not to apply interest rate risk rules to non-internationally active financial institutions such as credit unions (the rules would be mandatory for large, internationally active banks), WOCCU wrote that the decision should help lighten the regulatory burden on credit unions.
The Basel Committee’s consideration of the proposal comes in the same year NCUA opted to not include interest rate risk in its revised risk-based capital proposal.
“Credit unions rarely, if ever, operate on a cross-border basis and many of the calculations required by (the proposed) standard may provide unreasonably burdensome and of relatively little supervisory value for small credit unions and other credit unions with less complex assets and liabilities,” wrote Michael Edwards, VP and general counsel with WOCCU. “For example, the median asset size of credit unions in the United States is USD 25.5 million in total assets, with over 3,000 U.S. credit unions having less than USD 25.5 million in total assets . . . Small financial institutions are also unlikely to have significant interest rate risk on their balance sheets because substantial investments in long-term assets would likely constrain their liquidity positions. Many larger credit unions have similarly non-complex assets and liabilities because credit unions’ business activities are limited…”
WOCCU said it believes that the Committee should retain a principles-based approach to interest rate risk under Pillar 2 and support the Committee’s proposed standalone Pillar 2 framework. World Council also said strongly supports the principle of proportionality expressed in Section III (2.3) of the proposed Pillar 2 framework.
World Council said it does not support the Committee’s proposed Pillar 1 framework either as a standalone framework or as a hybrid Pillar 1 and Pillar 2 framework. “We believe that the consultative document’s proposed Pillar 1 approach is overly prescriptive and inflexible,” WOCCU said in its comment letter. “The Pillar 1 approach would also be more likely to impose unjustified regulatory burdens on community financial institutions like credit unions because it is less easily adaptable to different local economic conditions and different financial institution models.”