LONDON–The Bank of England’s proposed overhaul of credit unions in the U.K. would make it much more difficult for CUs to compete with banks, according to credit union representatives.
Reuters reported that lawmakers and bodies such as the Church of England want to see credit unions compete better with the "Big Four" banks that dominate the British market for current or checking accounts and personal loans, as well as with "payday" lenders charging high interest rates to those lacking access to other forms of credit.
But the BoE's supervisory arm, the Prudential Regulation Authority (PRA), in June proposed requiring credit unions with more than 10,000 members and 10 million pounds ($15 million) on their books to hold capital equivalent to 10% of their assets, as a safeguard in the event of their failure.
The BoE plan would also cap each deposit account at 75,000 pounds, the limit insured by an independent body.
Brian McCrory, secretary of the World Council of Credit Union's board of directors, said the proposals would lead to significant overcapitalisation, had no underlying rationale, and would undermine the viability of credit unions, according to Reuters.
"We view it as anti-competitive. It would be hugely costly if not unattainable," McCrory told the meeting.
There are 500 credit unions in Britain, with membership numbers ranging from a handful to those with more than 30,000 and deposits of more than 100 million pounds.
Martin Stewart, the PRA's director of credit unions, said meeting a minimum capital requirement was key to making the sector sound. "The PRA wants credit unions to recognize the risks they take," he told Reuters.
But Mark Lyonette, chief executive of the Association of British Credit Unions, said the cap would turn credit unions into "second rate depositors" unable to compete properly with banks.