PRA suggests capital requirements reforms for credit unions

The Association of British Credit Unions has welcomed the proposals

The Bank of England is looking to boost competition in lending by cutting capital requirements for credit unions.

Deputy governor Sam Woods announced the proposals on 24 October, and said the aim is to help credit unions grow. Capital requirements based on membership numbers and performing “additional activities” will be abolished under the plan. Credit unions under £5m in assets will still face the 3% capital requirement and those between £5m and £10m in assets must hold 5% capital to assets on all assets.

Credit unions with more than £10m in assets must hold 8% capital to assets on all assets above the £10m threshold and below £50m, while credit unions over £50m in assets must hold 10% capital to assets on all assets over £50m.

The Prudential Regulation Authority has mapping the barriers faced by smaller banks, teaming up with credit union supervisors to look at capital requirements for the sector.

Mr Woods said: “The effect of these changes should be to reduce overall capital requirements for the credit union sector by roughly one quarter.”

He also pointed out that while lower prudential barriers to entry into the banking sector had resulted in new banks entering the market, these had been unable to grow into big banks.

Abcul’s head of policy and 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 the proposals announced by the Bank of England. We believe that these measures will provide a strong platform for credit unions to fulfil 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.”

The Bank has launched a consultation to assess reactions to its proposed changes. Credit unions have until 24 January 2020 to respond to this consultation.