10% assets rule for credit unions

THE country’s 410 credit unions have been told by the Financial Regulator to have a regulatory reserve ratio of at least 10% of assets in place by September 30 — or face restrictions to their operations.

With assets of close to e13 billion credit unions will have to set aside reserves of e1.3bn, which dwarfs the Irish League of Credit Unions non-statutory “stabilisation fund” of e105 million.

The Office of the Registrar of Credit Unions has set the new reserve rule in a document entitled Draft Regulatory Reserve Ratio for Credit Unions. They apply to each credit union individually.

“The recent turmoil in global financial markets has highlighted the importance for all financial institutions to ensure they have sufficient reserves to support their undertakings and maintain confidence in the financial system.

“Furthermore, the difficult economic environment that credit unions are currently experiencing places increased emphasis on the requirement for credit unions to ensure they are maintaining adequate reserves,” the document states.

The registrar has ordered that with effect from September 30, 2009: “All credit unions are required to maintain a regulatory reserve ratio of not less than 10% on an on-going basis.”

The registrar has also ordered that the reserves available to a credit union should be “unrestricted and non-distributable”.

And the document reveals that “where it is considered appropriate”, the Registrar of Credit Unions may set a ratio for a credit union, or a category of credit unions, that is higher than the 10% minimum.

The registrar is intent on making sure all credit unions meet the new criteria and has set out a specific timetable of compliance.

“Where the credit union does not have an adequate statutory reserve, after the transfer of other realised reserves, to meet the regulatory reserve ratio by September 30, 2009, the board of directors of the credit union must provide the registrar with a plan for achieving compliance, in accordance with the following timeframe.

* September 30, 2009 — regulatory reserve ratio of at least 8%.

* September 30, 2010 — regulatory reserve ratio of at least 9%.

* September 30, 2011 — regulatory reserve ratio of at least 10%.

The draft regulations set out the implications for those credit unions that do not meet the required reserves.

“Credit unions which cannot meet the regulatory reserve ratio by September 30, 2009, may be subject to certain restrictions in their business to take account of their low reserve base,” the document states.


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