The World Council of Credit Unions (World Council) urged the International Association of Deposit Insurers (IADI) to ensure that supervisory authorities prioritize early intervention when resolving cooperatives.  The comments came as part of a consultation by the IADI on in consultation on its Guidance Paper on "Ways to resolve a financial cooperative while keeping the cooperative structure".

World Council supported the findings of the paper to the extent that it identified that in most cases, financial problems at a cooperative depository institution can be addressed at an early stage through prompt corrective action measures including capital building plans through increased earnings retention and/or issuance of capital shares and use of "Net Worth Restoration Plans".  These methods allow a supervisor to prioritize maintaining the assets in a cooperative when resolution is necessary. 

World Council emphasized that the use of these early intervention measures such as Net Worth Restoration Plans, “spinning down” by reducing assets, and supervisory contracts will help promote safety and soundness by helping prudential supervisors correct material weaknesses at financial cooperatives prior to the point of non-viability.

Finally, World Council urged emphasis on the concept that “Demutualization” should only be considered in the rare situation where there are no other financial cooperatives in the jurisdiction that can absorb the problem institution even with supervisory financial assistance or state aid.

A copy of the letter can be viewed here.