A 2020 Fiscal Plan report of the Financial Oversight and Management Board for Puerto Rico found that very little progress has been made in reforming the Public Corporation for Supervision and Insurance of Cooperatives of Puerto Rico (COSSEC) that was proposed in 2016 and 2017 by the Puerto Rico government.
According to the report, COSSEC’s system is composed of 113 locally-chartered and insured credit unions, holding approximately $8.3 billion in shares and deposits.
However, the Fiscal Plan noted that the island's credit unions face numerous challenges. Puerto Rican cooperatives had increased their investment in Puerto Rico government bonds in the run-up to the government's default on its debt. In addition, COVID-19 and the subsequent 4-month loan moratorium will have a negative impact on many cooperatives’ cash flows in the short term. Approximately, $1 billion in loans have participated in the 4-month loan moratorium.
The 2020 COSSEC Fiscal Plan recommends that COSSEC to develop and commit to a plan to identify and resolve any cooperatives that are currently insolvent and undercapitalized within 24 months.
The report states that COSSEC governance must be overhauled to allow COSSEC to act quickly, decisively, and in the best interests of the safety and soundness of the cooperative system and to ensure depositor protection. The COSSEC Board must be reformed to ensure that it is an independent
body.
Currently, COSSEC’s board is comprised of 9 members, 5 of which are cooperative members and the remaining 4 are government officials. It is being recommended that the board be comprised of 5 members, who cannot have any affiliation or financial ties to a cooperative regulated by
COSSEC or the cooperative movement. The Oversight Board recommended that legislation reforming COSSEC become law by March 2021.
The 2020 COSSEC Fiscal Plan looked at improving transparency in accounting. The legal system currently allows cooperatives to use Regulatory Accounting Principles (RAP). However, RAP does not require disclosure of the current market value of assets under distress.
Additionally, legislation permitted cooperatives to amortize over a 15-year period any losses resulting from the default of Puerto Rico Government Bonds.
The Government must submit legislation that addresses this critical gap by requiring all cooperatives to adhere to GAAP within 5 years. Also, legislation needs to abolish any special accounting treatment for holdings of Puerto Rico Government Bonds.
Furthermore under the current structure, COSSEC is the regulator for both financial and certain non-financial cooperatives in Puerto Rico. However, non-financial cooperatives do not contribute to COSSEC’s resources. The report recommended that the regulatory power over these non-financial cooperatives be transferred to Comisión de Desarrollo Cooperativo with an effective date of no later than the end of Fiscal Year 2023.
To read the document, go to the Financial Oversight and Management Board's documents page.
Showing posts with label Puerto Rico. Show all posts
Showing posts with label Puerto Rico. Show all posts
Thursday, July 9, 2020
Friday, September 6, 2019
Little to No Progress in Reforming COSSEC
Two years later, The Financial Oversight and Management Board for Puerto Rico reported little to no progress in reforming the Public Corporation for the Supervision & Insurance of Cooperatives in Puerto Rico (COSSEC).
COSSEC is responsible for overseeing and insuring the island's credit unions or cooperatives.
On August 4, 2017, The Financial Oversight and Management Board had certified the Fiscal Plan for COSSEC. On August 19, 2018, COSSEC issued its revised Fiscal Plan for COSSEC, which was never certified by The Financial Oversight and Management Board.
The Financial Oversight and Management Board wrote in its Fiscal Year 2019 Annual Report that "there is a need for COSSEC to have stronger and independent governance in order to to exercise its role as a regulator and insurer."
Reforms would also include adopting regulatory and accounting reporting standards and capital levels more consistent with to that of Federal regulators.
Without meaningful reforms, federally-insured credit unions could face potential reputation risk from bad headlines about COSSEC.
Go here to read the Annual Report.
COSSEC is responsible for overseeing and insuring the island's credit unions or cooperatives.
On August 4, 2017, The Financial Oversight and Management Board had certified the Fiscal Plan for COSSEC. On August 19, 2018, COSSEC issued its revised Fiscal Plan for COSSEC, which was never certified by The Financial Oversight and Management Board.
The Financial Oversight and Management Board wrote in its Fiscal Year 2019 Annual Report that "there is a need for COSSEC to have stronger and independent governance in order to to exercise its role as a regulator and insurer."
Reforms would also include adopting regulatory and accounting reporting standards and capital levels more consistent with to that of Federal regulators.
Without meaningful reforms, federally-insured credit unions could face potential reputation risk from bad headlines about COSSEC.
Go here to read the Annual Report.
Tuesday, April 24, 2018
Puerto Rico Issues Revised Fiscal Plan for COSSEC
On April 19, the Government of Puerto Rico issued its Revised Fiscal Plan for the Public Corporation for the Supervision & Insurance of Cooperatives in Puerto Rico (COSSEC). However, the Financial Oversight and Management Board for Puerto Rico on April 20 postponed certifying the Fiscal Plan for COSSEC until it can complete further analysis of COSSEC's projections.
COSSEC is responsible for insuring deposits and shares at the island's cooperatives up to $250,000 per person, regulating the island's cooperatives, and promoting the benefits of cooperatives.
According to the plan, Puerto Rico's 116 financial cooperatives have $8.7 billion in assets, $8.1 billion in shares and deposits, and $4.7 billion in loans as of December 2017.
The report notes that cooperatives have played an essential role of meeting the financial service needs of Puerto Ricans after Hurricane Maria.
The report noted that at the end of 2017, approximately 56 percent of the cooperatives investment portfolio of $1.5 billion or $852 million was in distressed Puerto Rico bonds. But the market value of these distressed Puerto Rico bonds was $235 million. In other words, the market value to par value was 27.6 percent.
The report notes that these Puerto Rico bonds are treated as special investments and subject to regulatory accounting principles (RAP). These special investments are carried on the books of these cooperatives at par value and losses on these special investments are to be amortized over 15 years.
The Revised Fiscal Plan states that the cooperatives will suffer a reduction in cash flows due to the probable restructuring of Puerto Rico government bonds.
The revised fiscal plan further notes that under RAP Member Shares are treated as capital instead of a liability. This overstates the cooperatives capital base and understates its liabilities.
However, RAP has been widely discredited, as it was viewed as one of the underlying causes of the savings and loan crisis in the late 1980s.
According to the plan, COSSEC estimated that it will need $391 million in capital support and $150 million in additional liquidity to address at-risk cooperatives. This includes a capital injection of $45 million from COSSEC, $200 million in COSSEC reserves for expected losses from Puerto Rico bonds, $46 million in COSSEC reserves for unexpected losses, and $100 million in possible capital injections from Banco Cooperative.
The Revised Fiscal Plan also discusses the need to address the governance structure of COSSEC. Currently, cooperatives constitute a majority of the COSSEC Board of Directors. This limits the ability of COSSEC to act as an independent regulator.
In addition, the plan outlines regulatory reforms, such as strengthening cooperative's capital and accounting reforms, and tools to monitor capital and liquidity of Puerto Rico's cooperatives.
Go to the Financial Oversight and Management Board for Puerto Rico to find the Revised Fiscal Plan.
COSSEC is responsible for insuring deposits and shares at the island's cooperatives up to $250,000 per person, regulating the island's cooperatives, and promoting the benefits of cooperatives.
According to the plan, Puerto Rico's 116 financial cooperatives have $8.7 billion in assets, $8.1 billion in shares and deposits, and $4.7 billion in loans as of December 2017.
The report notes that cooperatives have played an essential role of meeting the financial service needs of Puerto Ricans after Hurricane Maria.
The report noted that at the end of 2017, approximately 56 percent of the cooperatives investment portfolio of $1.5 billion or $852 million was in distressed Puerto Rico bonds. But the market value of these distressed Puerto Rico bonds was $235 million. In other words, the market value to par value was 27.6 percent.
The report notes that these Puerto Rico bonds are treated as special investments and subject to regulatory accounting principles (RAP). These special investments are carried on the books of these cooperatives at par value and losses on these special investments are to be amortized over 15 years.
The Revised Fiscal Plan states that the cooperatives will suffer a reduction in cash flows due to the probable restructuring of Puerto Rico government bonds.
The revised fiscal plan further notes that under RAP Member Shares are treated as capital instead of a liability. This overstates the cooperatives capital base and understates its liabilities.
However, RAP has been widely discredited, as it was viewed as one of the underlying causes of the savings and loan crisis in the late 1980s.
According to the plan, COSSEC estimated that it will need $391 million in capital support and $150 million in additional liquidity to address at-risk cooperatives. This includes a capital injection of $45 million from COSSEC, $200 million in COSSEC reserves for expected losses from Puerto Rico bonds, $46 million in COSSEC reserves for unexpected losses, and $100 million in possible capital injections from Banco Cooperative.
The Revised Fiscal Plan also discusses the need to address the governance structure of COSSEC. Currently, cooperatives constitute a majority of the COSSEC Board of Directors. This limits the ability of COSSEC to act as an independent regulator.
In addition, the plan outlines regulatory reforms, such as strengthening cooperative's capital and accounting reforms, and tools to monitor capital and liquidity of Puerto Rico's cooperatives.
Go to the Financial Oversight and Management Board for Puerto Rico to find the Revised Fiscal Plan.
Tuesday, August 8, 2017
Puerto Rico Oversight Board Certifies Fiscal Plan for Island's Credit Union Regulator and Insurer
The Financial Oversight and Management Board for Puerto Rico has certified a fiscal plan for the Public Corporation for the Supervision & Insurance of Cooperatives in Puerto Rico (COSSEC).
COSSEC is responsible for overseeing and insuring the island's 116 credit unions or cooperatives. These credit unions have $8.5 billion in assets and $7.9 billion in deposits
The fiscal plan acknowledges the risks coops face amid Puerto Rico’s fiscal crisis, as there is a high level of concentration in Puerto Rico’s debt among some cooperatives that could compromise the solvency of some.
The 116 cooperatives on the island have invested almost $965 million in Puerto Rico bonds, or 65 percent of their total investments totaling $1.5 billion. According to the document, Government Development Bank (GDB) notes comprise the greatest percentage of the Puerto Rican bonds held by the coooperatives. GDB bonds are worth 84 percent less than their original, or par, value.
In total, Puerto Rico bonds held by cooperatives are listed at 49.2 percent of their par value.
However, the plan states that given enough time, most cooperatives will be able to absorb losses arising from Puerto Rico bonds.
According to carribbeanbusiness.com, four credit unions are experiencing liquidity problems, but said options are being explored to take care of these, including a possible takeover by a large co-op.
COSSEC’s fiscal plan includes a capital injection program that would see roughly $533 million into the system to help address possible losses resulting from the restructuring of Puerto Rico’s debt. The amount would come from $383 million in capital and $155 million from the sale of certain loan portfolios, according to the document.
The fiscal plan also recommends changing the governance structure of COSSEC to eliminate conflicting regulatory and insurance mission. This could involve having the island's credit unions move to a federal charter and be regulated and insured by the National Credit Union Administration or another agency with expertise in financial regulation.
In addition, the oversight board called for legislation to allow the sale of credit unions assets to other non-coop entities, if COSSEC determines that a liquidation is necessary. The fiscal plan is seeking legislation to allow credit unions to issue preferred shares.
The document can be found here.
COSSEC is responsible for overseeing and insuring the island's 116 credit unions or cooperatives. These credit unions have $8.5 billion in assets and $7.9 billion in deposits
The fiscal plan acknowledges the risks coops face amid Puerto Rico’s fiscal crisis, as there is a high level of concentration in Puerto Rico’s debt among some cooperatives that could compromise the solvency of some.
The 116 cooperatives on the island have invested almost $965 million in Puerto Rico bonds, or 65 percent of their total investments totaling $1.5 billion. According to the document, Government Development Bank (GDB) notes comprise the greatest percentage of the Puerto Rican bonds held by the coooperatives. GDB bonds are worth 84 percent less than their original, or par, value.
In total, Puerto Rico bonds held by cooperatives are listed at 49.2 percent of their par value.
However, the plan states that given enough time, most cooperatives will be able to absorb losses arising from Puerto Rico bonds.
According to carribbeanbusiness.com, four credit unions are experiencing liquidity problems, but said options are being explored to take care of these, including a possible takeover by a large co-op.
COSSEC’s fiscal plan includes a capital injection program that would see roughly $533 million into the system to help address possible losses resulting from the restructuring of Puerto Rico’s debt. The amount would come from $383 million in capital and $155 million from the sale of certain loan portfolios, according to the document.
The fiscal plan also recommends changing the governance structure of COSSEC to eliminate conflicting regulatory and insurance mission. This could involve having the island's credit unions move to a federal charter and be regulated and insured by the National Credit Union Administration or another agency with expertise in financial regulation.
In addition, the oversight board called for legislation to allow the sale of credit unions assets to other non-coop entities, if COSSEC determines that a liquidation is necessary. The fiscal plan is seeking legislation to allow credit unions to issue preferred shares.
The document can be found here.
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