MADISON-The World Council of Credit Unions has told the Financial Stability Board (FSB) that it is generally supportive of a proposed framework that would eliminate the implicit public subsidy enjoyed by global systemically important banks (G-SIBs), but that its endorsement doesn’t extend to applying the same policy to all financial institutions, especially credit unions.
“Applying these Total Loss Absorbing Capacity (TLAC) rules to non-G-SIBs, however, will not achieve that objective because they are not beneficiaries of any such implicit subsidy,” WOCCU said in a letter to the FSB. “Applying TLAC to non-G-SIBs would also likely have negative competitive consequences by imposing unjustified capital costs on credit unions and other non-G-SIBs. We therefore do not support applying the proposed Minimum External TLAC rules to non-G- SIB credit unions because these TLAC rules would likely require credit unions to issue debt instruments that do not have a ready market and which are not easily compatible with credit unions’ cooperative structure.”
WOCCU noted that credit unions are not generally regarded as G-SIBs and typically have much less risky and less complex operations than commercial banks. Credit union supervisors sometimes apply standards originally developed for G-SIBs to large credit unions, WOCCU said, before adding, however, that based on those institutions’ large size compared to the jurisdiction’s other local credit unions, or based on those credit unions’ large size relative to the capitalization of the local deposit insurance fund or stabilization fund for credit unions.”
The letter, signed by WOCCU VP and general counsel Michael S. Edwards, goes on in greater detail to address a number of other specific questions posed by the FSB. For info: www.woccu.org.