The chief advocate for the world’s credit union movement says that recent reforms clearing the way for Australian customer-owned institutions to raise capital from external sources have set a benchmark for lawmakers in other countries.
Brian Branch, president and chief executive of the World Council of Credit Unions(WOCCU), told Banking Day that Australian credit unions and mutual banks now enjoyed greater flexibility than their overseas peers to grow their businesses.
“In other countries such as the United States, credit unions are limited to funding their businesses through retained earnings, which puts a break on their growth,” he said.
“We’ve seen some experimentation in Canada that was largely around subordinated debt but it was simply too expensive.
“The Australian reforms are a milestone.”
Branch is currently visiting Australia on a fact-finding mission to learn more about the Australian financial services industry following the completion of the Hayne Royal Commission.
He is leading a delegation of US credit union executives that are attending events in Sydney and Melbourne this week hosted by COBA. Other members of the delegation include Jim Nussle, president of the Credit Union National Association(COBA’s sister body in the US) and the CEOs of eight state-based credit union leagues.
Branch is a stalwart of the international mutual sector, having held various roles at WOCCU since 1990 before he was appointed to lead the organisation eight years ago.
WOCCU is the main vehicle through which customer-owned financial institutions around the world are lobbying international regulators to ease the compliance burden heaped on mutuals since the global financial crisis.
In the last 12 months it has begun to notch some important wins, most notably amendments to the Basel 3 framework announced in January that will spare mutual banks from having to comply with onerous new rules for managing market risk.
Last year WOCCU also agitated for the Basel Committee to begin setting global regulatory standards for emerging fintech players.
That led to the declaration of the first international rules that will gradually bring most fintechs under prudential supervision.
Branch believes that mutuals in the global financial services sector have been forced to shoulder a heavy and unnecessary compliance burden as a result of the governance failures of larger players in the banking industry.
“In the US the hot issue for credit unions is how to keep up with the demands of regulatory compliance,” he said.
“What we’ve found is that the responsibility of having to comply with all the regulations coming down the pipeline is reducing the number of institutions that can afford the costs.
“The growing regulatory burden is driving consolidation and reducing the ability of small credit unions to provide services to low income communities.”
Branch said the regulatory explosion was having anti-competitive effects and magnifying the problems of under-banked communities in parts of the country.
However, he said customer-owned banks in the US had not yet been impacted by a discriminatory regulatory capital regime under the Basel framework even though it had saddled their Australian counterparts for more than a decade.
The Australian Prudential Regulation Authority forces mutual ADIs to put aside larger licks of capital on every home loan they write compared to the four major banks.
While the issue has become a thorny one for COBA, Branch said US mutuals were working proactively to see it never happens in their market.
“In Australia APRA applies a more robust application of Basel 3,” he said.
“We haven’t seen that kind of application of different risk weightings between US institutions – at least not yet.
“ That’s why it is interesting to talk to Australian credit unions and mutual banks about their experience because the Basel framework could potentially affect us in similar ways.”