LONDON—Members of the European Network of Credit Unions (ENCU) met with the European Banking Authority to discuss the European Union's (EU) implementation of the Net Stable Funding Ratio, the Basel III metric for medium-term liquidity management. European credit unions are exempt from the EU's Basel III liquidity rules, but are impacted by them indirectly because the rules require banks to hold additional reserves against deposits made by credit unions and other financial institutions, according to the World Council of Credit Unions. These additional reserves raise the bank's effective cost of funds and result in credit unions receiving lower rates on their bank deposit investments, WOCCU said.
ENCU members including the Association of British Credit Unions, the Irish League of Credit Unions and the World Council of Credit Unions, participated in the meeting held at the European Banking Authority's offices on Canary Wharf in London, England.
The meeting follows two years of advocacy by the ENCU and World Council to achieve Basel III liquidity rules that allow credit unions to maintain a reasonable return on their investments in bank deposits. As a result of the ENCU's and World Council's advocacy efforts, the EU's version of the Liquidity Coverage Ratio issued in October 2014 reduced by 60% the reserves that banks must hold against short-term deposits made by credit unions, and the Basel Committee on Banking Supervision's revised version of the Net Stable Funding Ratio, also issued in October 2014, reduced by 50% the reserves that banks must hold against six-to-12 month term deposits made by credit unions. Although the Basel Committee has already finished issuing its Net Stable Funding Ratio guidance, the EU's version of these rules will have the force of law and are likely to include changes from the Basel Committee's suggested approach.
"We thank the European Banking Authority for taking into account credit unions' concerns during both the Net Stable Funding Ratio and the Liquidity Coverage Ratio rulemakings," said Michael Edwards, World Council's vice president and general counsel, in a statement. "We are hopeful that the EU's Net Stable Funding Ratio project will result in a framework allowing credit unions to continue to earn a reasonable yield on investments in bank deposits, as was the case with the EU's version of the Liquidity Coverage Ratio."
The European Banking Authority is likely to hold a public hearing on the EU's Net Stable Funding Ratio rules this autumn, after which the Authority will submit recommendations to the European Commission. The Commission will then issue a final set of Net Stable Funding Ratio rules in 2016 based on the Authority's recommendations.
At right, from left, Ed Farrell, Irish League of Credit Unions;Breege-Anne Murphy, Irish League of Credit Unions; Matt Bland, Association of British Credit Unions, Ltd.; Michael Edwards, World Council of Credit Unions.