Development Best Practices in Credit Union Supervision: Regulatory Standards

Regulatory standards for credit unions
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This paper discusses regulation and supervision standards for credit unions through the issuance of model bylaws and prudential rules and regulations. It recommends that a model bylaw should define:

  • Field of membership;
  • Membership requirements;
  • Scope of activities;
  • Services offered;
  • Management duties and responsibilities.

The paper also suggests that prudential regulations should be issued, at least in the areas of:

  • Capital adequacy - Maintenance of a minimum institutional capital to total assets ratio, normally 10%;
  • Allowances for assets losses - Maintenance of provisions for potential asset losses;
  • Licensing and entry requirements - Specifications on required documentation, education and background of founding officials, minimum institutional capital, minimum number of members and Management Information System (MIS) requirements;
  • Avoiding liquidity risk - Maintenance of a minimum level of liquid assets, usually a ratio of liquid assets to total deposits between 10% to 15%;
  • Restricting fixed assets - Investments in fixed assets to be limited to the amount of capital or a percentage of total assets, often 5% of total assets;
  • Member loans and portfolio diversification - Specifications such as maximum maturity, interest rate maximums, collateral requirements, maximum loans to one individual or group;
  • Standardization of loan delinquency calculations;
  • Specifications for standardized accounting, external audits and records preservation;
  • Standards on external credit and non-member deposits;
  • Specifications for investments outside member loans.

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