The Basel Committee’s recent release of its High-level Considerations on Proportionality is cause to celebrate for credit unions. While the Basel III Framework always had proportionality built into the standard, we have often observed that national-level regulators were hesitant to apply proportionality either for fear of the perception of watering down an international standard, or because the effort to properly tailor the regulations was more work than the regulator wanted to take on. This guidance makes it abundantly clear that the Basel III Framework is intended for large, internationally active banks.
The guidance goes even further by making it clear that for simpler, less complex financial institutions such as credit unions that generally do not operate on a cross-border basis, applying simpler approaches is entirely appropriate, or using an earlier or modified form of the Basel III framework may also be appropriate.
This leaves little excuse for national-level regulators not to tailor regulations for credit unions and should lead to regulatory relief. Many jurisdictions apply substantial elements of the framework that are not appropriate for the credit union model. Make no mistake, there is still work to be done at the national level on the implementation of the guidance, but this release is cause to celebrate. Credit unions need regulations that allow their member-owned cooperative model to operate, and this sets the stage.
continue reading »