The World Council of Credit Unions, Inc. (WOCCU) said that the recently released Basel Accord on Capital Adequacy (Basel II) needs to go further to level the playing field for small financial institutions, and is its members to submit their comments on the document by July 15.
"While we're delighted to see that the consultative paper reflects our past input and is equalizing some key provisions, such as residential mortgages and allowing greater flexibility in measuring operational risk, we believe Basel II needs to go further to ensure a level playing field for smaller retail financial institutions, such as credit unions," said WOCCU CEO Arthur Arnold.
The Basel Accord, as released, makes it possible for large financial institutions with sophisticated risk analysis models to free up more capital relative to smaller financial institutions, such as credit unions. In Australia, large banks may be able to reduce capital by as much as 40% versus 10% for credit unions. The existing Basel Accord on Capital Adequacy is the basis from which financial institution and credit union regulators in more than 100 countries have set capital standards for their institutions.
Just because an institution is smaller and may not be able to afford or implement the sophisticated risk assessment models, doesn't mean they are taking on more risk, said Dave Grace, WOCCU manager of regulatory affairs. "On the contrary, because credit unions are small, retail-oriented, member-owned financial institutions, they present less systemic risk than the average bank."
Originally, the Basel Accord was applied to banks with international operations. Among the top 10 U.S. banks, only 7% of their collective total loan portfolio is in international assets. However, the Basel Accord is benefiting banks without international operations, making it less costly and more competitive to offer loans, WOCCU stated.