The Bank of England has set out its proposed changes to the capital requirements that apply to Credit Unions. The reforms propose a move from the current approach to a new system that applies graduated capital requirements as Credit unions move through size bands on their assets.
The changes include:
- Capital requirements based on membership numbers and performing “additional activities” are to be abolished
- The 3% capital requirement for credit unions under £5 million in assets is retained
- Credit unions between £5 million and £10 million in assets must hold 5% capital to assets on all assets as is currently the case
- Credit unions over £10 million in assets must hold 8% capital to assets on all assets above the £10 million threshold and below £50 million
- Credit unions over £50 million in assets must hold 10% capital to assets on all assets over £50 million
Chief Executive Officer of the Bank of England, Sam Woods said: “The effect of these changes should be to reduce overall capital requirements for the credit union sector by roughly one quarter/”
The Association of British Credit Unions Limited (ABCUL) has warmly welcomed the package of reforms to the credit union capital requirements which it says, if approved, will provide a more proportionate approach to the challenges of capital accumulation for growing credit unions.
ABCUL’s Head of Policy & Communications, Matt Bland said “Our membership has been calling on us consistently over a number of years now to make reform of the capital requirements for credit unions our top priority in our advocacy and lobbying efforts.”
“We are therefore delighted to see yesterday’s proposals announced by the Bank of England. We believe that these measures will provide a strong platform for credit unions to fulfill their growth potential and it is the ideal backdrop for the sector as it finalises a shared vision and strategy for the future ABCUL’s Town Hall consultation process.”