WOCCU Urges Revisions to Basel Market Risk Capital Proposal
Volume 6, Number 6
October 10, 2017
WOCCU Urges Revisions to Basel Market Risk Capital Proposal
World Council of Credit Unions (WOCCU) filed a comment letter in late September urging the Basel Committee on Banking Supervision to made revisions to its proposed Simplified alternative to the standardised approach to market risk capital requirements to help reduce the standard’s regulatory burdens on credit unions and other community-based financial cooperatives.
This is the first Basel Committee standard to be proposed as expressly applicable to non-internationally active depository institutions like most credit unions. The Committee’s change in focus to non-internationally active institutions, however, is consistent with the Basel Committee’s revised mandate to regulate deposit-taking institutions that do not operate on a cross-border basis which Basel Committee Secretary General William Coen informed us of earlier this year. We expect that future Basel Committee proposals will similarly focus on establishing safety and soundness rules applicable to non-internationally active institutions like credit unions, even though the Committee previously focused on regulating internationally active banks.
Our comments urged the Committee to make the following changes to the proposal to reduce compliance burdens on financial cooperatives:
- Allowing non-complex depository institutions up to EUR 10 billion in assets (from a proposed EUR 1 billion) and with trading books up to 10 percent of risk-weighted assets (instead of 5 percent) to utilize the simplified alternative to market risk standard;
- Harmonizing the simplified alternative’s risk weights for general interest rate risk, equity risk and commodities risk with those of the standardised approach to market risk;
- Treating well-capitalized financial institutions without a credit rating as “investment grade” for purpose of counterparty risk;
- Revising the proposal’s dichotomy between “advanced economies” and “emerging markets” to include the Republic of Korea and all European Union Member States as “advanced economies;” and
- Clarifying that the simplified alternative to market risk standard applies only to the institution’s available-for-sale bonds and loans.
WOCCU Urges Changes to Proposed Rules for Asset-Backed Commercial Paper
World Council of Credit Unions (WOCCU) filed two comment letters on October 5th with the Basel Committee on Banking Supervision in response to its proposals on Criteria for identifying simple, transparent and comparable short-term securitisations and Capital treatment for simple, transparent and comparable short-term securtisations. Our comments generally supported the Committee's efforts to propose guidance to assist the financial industry in developing stable and liquid markets for asset-backed commercial paper. However, we urged several adjustments to the two proposals in our comments on asset-backed commercial paper securitization criteria and capital treatment to help limit potential regulatory burdens on credit unions and other mutuals:
- Allow asset-backed commercial paper to be sponsored and backstopped by a consortium of smaller financial institutions rather than only by individual large banks;
- Permit loans made to borrowers with low credit scores or who have a history of bankruptcy to be included in asset-backed commercial paper collateral pools;
- Provide further clarification and guidance on establishing the "homogeneity" requirement for asset-backed commercial paper, such as whether loans for new cars and for used cars could be included in the same issuance;
- Provide flexibility for institutions to enter the asset-backed commercial paper market by reducing the minimum lending experience to no more than two years (rather than the proposed minimum of five to seven years of experience); and
- Allow institutions to engage third-parties to help meet the proposed minimum experience requirements.
Michael S. Edwards
VP & General Counsel
World Council of Credit Unions (WOCCU)
601 Pennsylvania Ave., NW, Washington, DC 20004-2601 USA
Office: +1-202-508-6755 | Mobile: +1-215-668-5240 | Fax: +1-202-638-3410
medwards@woccu.org | www.woccu.org