Euro CUs Protest Basel III Funding Classification
European credit unions with concerns about funding classifications as they appear in Basel III guidelines have taken the matter in hand, meeting with lawmakers in both London and Brussels last week to state their case.
Representatives from the European Network of Credit Unions and World Council of Credit Unions met with representatives from the European Banking Authority’s Regulation Section in London on Nov. 21 to ask the EBA for credit union-specific liquidity classification under the European Union's 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 also met with the European Commission in Brussels on Nov. 22 regarding the Basel III rules to voice the same request.
Credit unions' deposits in European banks currently are classified under Basel III as "wholesale funding." The "wholesale" classification assumes most or all of these deposits would be withdrawn during periods of economic stress, even though European credit unions significantly increased their deposits in banks during the global financial crisis that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 had negative impacts for some credit unions, such as an average 1.5% reduction by Irish banks of yields they pay on credit union deposits.
"Application of a wholesale-funding classification for credit unions' deposits does not reflect the actual behavior of credit unions' bank deposits,” said Brian Branch, World Council president/CEO. “This EU correction of the Basel III interpretation will ensure that credit unions can continue to deliver financial inclusion in Europe."
ENCU members also met with the EBA's and the European Commission's Consumer Protection sections concerning upcoming EU directives and guidance papers on mortgage lending, payment accounts and other payment services. The same group also discussed implementation U.S. Foreign Accounting Tax Compliance Act and related initiatives with the European Commission’s Tax section.