The resolution scheme for Ireland’s 400 credit unions will be extended until December, the European Commission agreed under state aid rules.
The scheme, first approved in Dec 2011, has some minor modifications but remains in line with the Commission’s guidance on state aid to banks during the crisis.
“The prolonged measures are well targeted, proportionate and limited in time and scope.
“The commission therefore concluded that they represent an appropriate means of remedying a serious disturbance in the Irish economy,” a statement from the commission said.
“A resolution scheme must bring swift and efficient support when a failing entity needs to be resolved in order to safeguard financial stability and minimise economic losses.
“At the same time, moral hazard and distortions of competition need to be limited in the interest of European consumers and taxpayers. I am satisfied that the Irish scheme fulfils these conditions,” said Joaquín Almunia, commission vice-president in charge of competition policy.
The objective of the scheme is to safeguard financial stability and minimise economic losses, when a credit union becomes unable to meet the regulatory requirements set by the Irish Central Bank.
It provides for an orderly resolution of a failing credit union by transferring all assets and liabilities to an acquirer in a competitive process.
If necessary, a resolution fund will provide a financial incentive directly to the acquirer. Ireland will make an initial repayable contribution to the resolution fund, which will over time be funded by levies on credit institutions, the commission said.
In 2011, when the scheme was first approved, there were 408 credit unions with savings of €12.2bn.
The resolution fund has been financed with €500m from the State. The scheme allows the Central Bank to deal quickly with all credit institutions including credit unions, including allowing them to appoint a manger, modify liquidation and transfer credit unions assets and liabilities.
The Credit Union and Co-operation with Overseas Regulators Act, which became law at the end of last year, provides for major reforms of the credit union sector.
Some of it has been implemented already and recently the Department of Finance set out the timetable for the remaining sectors to be implemented over the next 12 months.
A report from the World Council of Credit Unions shows that Irish Credit Unions, with 73% of the population signed up, had the second highest penetration rate in the world.
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