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Basel III Liquidity Changes Will Help CUs Maintain Access to Bank Services and CD Yields
Thursday, February 27, 2014 6:40 AM

Michael S Edwards

The Basel Committee on Banking Supervision has proposed changes to its Basel III liquidity rules to help credit unions in the U.S. and around the world maintain access to bank services as well as favorable yields on bank certificates of deposit.

The World Council of Credit Unions (WOCCU) advocated for the proposed changes to the Basel III “Net Stable Funding Ratio” (NSFR), Basel III’s medium-term liquidity metric. Under the current version of the Basel III NSFR, credit unions’ term deposits in banks are classified as “wholesale funding,” which assumes that 0 percent of these deposits would be “available” to the bank during periods of economic stress because of withdrawals.  

According to Michael S. Edwards, WOCCU vice president and chief counsel, the new Basel Committee proposal would change the NSFR’s 0 percent availability to 50 percent availability for bank term deposits made by credit unions of any asset size. 

“The proposal would also allow national bank regulators to classify small credit unions that have below the equivalent of €50 million in assets (about US$68 million) as ‘small and medium enterprises’ whose bank deposits would be accorded more favorable availability ratios on a sliding scale of up to 90 percent or more availability, depending on the depositing credit union’s asset size,” notes Edwards.

Edwards suspects that the prospect of increased Basel III liquidity reserve requirements for credit unions’ bank deposits, along with new Bank Secrecy Act rules on correspondent banking, has likely played a role in major banks in the U.S. closing credit unions’ accounts in some parts of the country, like West Virginia and Ohio, even though the Federal Reserve Board did not finalize its Basel III liquidity proposal for large banks until its board meeting on Feb. 18, 2014. In the Republic of Ireland, credit unions’ yields on bank term deposits decreased by an average of 1.5 percent after phase-in of the Basel III liquidity rules. Some British banks have also closed credit unions’ accounts because of new Basel III and anti-money laundering requirements.

The favorable Basel Committee proposal follows extensive advocacy by World Council, the European Network of Credit Unions (ENCU), and the Irish League of Credit Unions, including meetings with Basel Committee representatives as well as WOCCU and ENCU comment letters. The Basel Committee proposal is open to public comment until April 11, 2014, and will likely be finalized later this year.