LONDON — With Basel III looming for banks and concerns over whether some of the global banking rules will filter down to CUs, representatives from the European Network of Credit Unions (ENCU) and World Council of Credit Unions conferred with European Union (EU) policymakers in London and Brussels last week.
The World Council's website reported that the groups discussed how to limit the Basel III liquidity rules' negative impact on credit unions. ENCU and World Council also met with EU authorities about consumer protection and taxation issues affecting credit unions in Europe.
Representatives from all six ENCU member organizations — Association of British Credit Unions, Ltd., Estonian Union of Credit Cooperatives, Federation of Romanian Credit Unions, FULM Savings House (Macedonia), Irish League of Credit Unions and National Association of Co-operative Savings & Credit Unions (Poland) — met with the European Banking Authority's (EBA) Regulation section in London on Nov. 21.
ENCU asked the EBA to consider establishing a credit union-specific liquidity classification under the EU's European Basel III rules in order to reflect that credit unions' deposits in banks are generally "sticky and stable" even during times of economic stress.
ENCU representatives met with the European Commission in Brussels on Nov. 22 regarding the Basel III rules to make the same request.
Under Basel III, CU deposits in European banks are classified as "wholesale funding," deposits that would be withdrawn during periods of economic stress, even though European credit unions significantly increased their deposits in banks during the global financial crisis that began in 2007.
Banks must hold increased reserves for "wholesale" deposits compared to the reserves required for "small business" or "retail" deposits. These higher reserve requirements increase the banks' cost of funds when doing business with credit unions. These new costs have resulted in Irish banks reducing the yields they pay on credit union deposits by an average of 1.5% and also have contributed to some banking institutions in Great Britain ceasing to accept credit unions' deposits at all.
World Council and the Irish League met with the Basel Committee on Banking Supervision in September regarding the classification of credit unions' deposits in banks under the global Basel III liquidity rules.
"Application of 'wholesale funding' classification for credit unions' deposits does not reflect the actual behavior of credit unions' bank deposits. This EU correction of the Basel III interpretation will ensure that credit unions can continue to deliver financial inclusion in Europe," said Brian Branch, World Council president and CEO.
