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| New Regulatory Reserve Ratio for Credit Unions |
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By
Des O'Neill, OmniPro
Jun 16, 2009 |
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The global turmoil in financial markets has highlighted the importance for all financial institutions to ensure that the have sufficient reserves to support their undertakings and maintain confidence in the financial system. For this reason all credit unions are required to maintain a Regulatory Reserve Ratio of not less than 10% on an ongoing basis.
The Regulatory Reserve Ratio is defined as the amount held in the statutory reserve as a percentage of total assets. The guidance document only sets out the minimum requirement for credit unions and it is up to the board of each credit union to decide the amount of reserves to hold based on an assessment of the scale and complexity of the credit union’s business, the risk profile and market conditions. Credit Unions must remain compliant with the Regulatory Reserve Ratio on an ongoing basis and if the reserve falls below the 10% minimum the board of directors should immediately inform the Registrar of Credit Unions while simultaneously taking steps to restore the reserve.
Where a credit union’s Regulatory Reserve Ratio is less than 10% the credit union must transfer other realized reserves to the statutory reserve in order to bring the Reserve up to the minimum. There are transitional provisions where a credit union does not have an adequate statutory reserve to meet the Ratio requirements. The credit union must present a plan to the Registrar demonstrating how compliance is going to be achieved within the following maximum timelines
· 30th September 2009 – Regulatory Reserve Ratio of at least 8%
· 30th September 2010 – Regulatory Reserve Ratio of at least 9%
· 30th September 2011 – Regulatory Reserve Ratio of at least 10%
If a credit union can not meet the regulatory Reserve Ratio by 30th of September 2009 they may be subject to certain restrictions including not being entitled to distribute any surplus funds as all funds must be retained until the Regulatory Reserve Ratio is satisfied.
The draft document in relation to the Regulatory Reserve Ratio may be reviewed in full here
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