WASHINGTON–When it comes to international bodies such as the G20, it’s critical the world’s credit unions come together to appear as large as possible if they have any hope of helping the very smallest of their members, according to one person.
Ryan Donovan, EVP and chief advocacy officer with CUNA, reminded credit unions during a World Council of Credit Unions’ webinar titled “Credit Unions & The G20: The Push for Financial Inclusion,” that understanding policymakers is key to having policymakers understand credit unions—even if he’s come to the conclusion many policymakers aren’t much interested in that understanding.
While many in CUs may believe the issues considered by the G20 to be irrelevant to them, leaders from around the world used the WOCCU webinar to stress that is not the case.
Officially, the G20 is an intergovernmental forum comprising 19 countries and the European Union that works to address major issues related to the global economy. But as is revealed by this CUToday.info series being presented during International Credit Union Week, unofficially the G20’s decisions and policies can often lead to undesirable outcomes for smaller organizations, including credit unions, when “proportionality” isn’t taken into account.
How Are You Relevant?
“One of the core principles of advocacy is really understanding your audience, and when you're working with policymakers that means understanding what keeps them up at night, what gets them out of bed in the morning, and how the information that we have as advocates can play in their decisioning,” said Donovan. “In other words, how are you relevant to them? A key question is do they care, but really the question is what do they care about? The G20, the Basel Committee, international policymakers and standard-setters in general are important because they set a tone in the global economy and for U.S. regulators.”
Donovan suggested the understanding he has come to is likely not going to be the kind of news credit unions want to hear.
Regulators ‘Don’t Really Care’
“Over the last couple of years I've come to the conclusion that regulators really don't care about the burden they're putting on their institutions, because that's not what gets them out of bed in the morning and that's not what keeps them up at night,” he said. “They care about preventing another global financial crisis. In the case of the international policy-setters, they want to make sure they are preventing the collapse of large, internationally active banks. No regulator has ever lost their job or been chastised by their government because they kept a financial institution healthy and sound
“I think this is why it's important to have World Council advocating for us at the global level,” Donovan continued. “That's why it's important for World Council members to come together and take the message directly to the standard-setters and policymakers…These folks could really not care less whether small, domestic cooperatives are impacted by their rules, and that's a huge burden for us to overcome at the international level.”
Nevertheless, Donovan said that’s why World Council, CUNA and its international counterparts continue to advocate before the G20 and to highlight how new standards are affecting credit unions, even if that is not the intention.
Appearing to be Bigger
“In essence, we (must) come together as an international credit union community and make ourselves appear big enough for them to notice, but still small enough that perhaps we cannot be impacted by their regulation,” said Donovan. “That's why the G20 language on financial inclusion proportionality is important. It really represents the global community coming together to endorse the idea that one-size-fits-all regulations are counterproductive to financial inclusion, and the more that we can get international standards-setters–in this case, the G20, which is represented of many of our governments–the more we can get them endorsing this proportionality idea. There is a better chance that our regulators and our lawmakers will implement proportional regulation.”
Donovan pointed to the ongoing reduction in the number of credit unions in the United States and, echoing comments made earlier by Michael Lawrence, the president of Australia’s CU trade association, said the growing regulatory burden is a big reason why.
The One-Size-Fits-All Dilemma
“Our prudential regulator, NCUA, has really taken notice of other regulators’ requirements. They've taken notice of what the banking regulators are doing and they've tried to apply similar standards to credit unions,” said Donovan. “So, our effort is really to get them to tailor their rules to the risk profiles of credit unions.”
As examples of one-size-fits-all rules for CUs in the U.S., Donovan cited CECL, risk-based capital and the CFPB’s numerous rules, the latter of which, he said, has driven many CUs out of the international remittances market.
While he said NCUA has tailored some rules and lightened its regulatory approach for smaller CUs, a $100-million in assets threshold to qualify as “small” remains too low.
Meanwhile, Donovan said, the $10-billion threshold at which financial institutions fall under the purview of the CFPB is a “made-up” number. He noted he was working on Capitol Hill at the time the Dodd-Frank Act was passed––which created the CFPB––and said the $10-billion figure was equivalent of “pulling a rabbit out of a hat.” He further shared the figure was originally $1 billion before credit unions and other groups successfully pushed back.
But it still means CUs of more than $10 billion are treated similarly to banks of similar and significantly larger asset sizes, he said.
Hurting Members
Overall, the lack of proportionality or “rightsizing” of regulations “hurts credit union members and that's the message we’ve got to deliver to policymakers and lawmakers,” said Donovan. “At the end of the day they require us to put resources aside that could be used to impact members financial well-being.”