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Central Bank Governor to credit unions: Legislation to protect depositors coming
Central Bank Governor Jwala Rambarran says legislation now before Parliament will make it compulsory for the savings of credit union depositors to be protected under the deposit insurance mechanism.
“A key institutional support to the new regulatory framework will be the establishment of a mandatory deposit insurance system for the credit union sector. Not only would the insurance system cover deposits, but it must include shares which represent the vast majority of the sector’s savings, a situation that is unique to T&T. In most jurisdictions the protection fund for the credit union sector covers deposits only,” he said.
Rambarran said they expect the credit union movement to continue to play a critical financial inclusion role in the financial sector. “We feel strongly, however, that more robust regulation and supervision are urgently needed to support further growth and development of credit unions.” The Governor was delivering the feature address at the 63rd Annual General Meeting of the Telephone Workers Credit Union Co-Operative Society Ltd at the Hilton Trinidad and Conference Centre on Lady Young Road, St Ann’s, yesterday.
He took the time to address the clear differences between the Co-operative Societies Act and the Draft Credit Union Bill, which he said many decision-makers in the credit union system were still unsure about. While the commissioner of co-operatives was involved in the operations of the credit unions—approving by-laws, individual investment transactions, provision of non-financial services and the use of reserve funds—the Central Bank has placed prohibitions and limits on certain activities in the Draft Credit Union Bill and regulations.
This, as a consequence, removed the need for the Inspector of Financial Institutions to engage in the time-consuming task of approving individual transactions and activities for credit unions. The Co-operative Societies Act is deficient in prudential criteria governance, enforcement and protection of members’ funds, Rambarran said. “The prudential criteria cover capital and borrowing only and require that credit unions must establish ten per cent of their surplus in a reserve fund and that a borrowing limit be set annually at an AGM.
“By contrast, at the heart of the Draft Credit Union Bill is a regime of prudential criteria covering capital, liquidity, asset quality and earnings, borrowing, credit exposure and non-financial activities. The prudential framework is aligned with the Pearls financial ratios which have been adopted in the main by the local credit union sector.” The proposed credit union legislation, according to the Governor, is an important step towards placing the credit union movement in a position of greater strength, safety and soundness.
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