Credit Unions want ‘central liquidity fund’

CREDIT Unions want the Government to set up and guarantee “a central liquidity fund” to help fund credit unions who run short of cash.

And yesterday the Irish League of Credit Unions (ILCU) welcomed a move by Finance Minister Brian Lenihan to carry out a review of “new regulations governing the reserve ratio required by credit unions” proposed by the registrar of credit unions, Brendan Logue, and due to come into effect in September.

ILCU chief Kieron Brennan said: “The Irish League of Credit Unions welcomes the decision by the minister to seek a review of the introduction of the proposed regulation pending a review of the risk profile of credit unions. If the registrar’s proposal were to be introduced, in its current form, it would have lead to a position where hundreds of credit unions around the country would have been unable to pay dividends to members. It would have inflicted huge reputational damage on credit unions and damaged people’s confidence in the movement as a whole.”

Mr Brennan said credit unions are in agreement with the registrar on the need for a level of reserve that will both protect members’ interests and maintain public confidence in the security of the credit union movement. But Mr Brennan argued that the nature and timescale of the deferred proposal were inappropriate.

“It is our view that the thinking behind the proposal was flawed. The proposal made reference to restrictions on activities for those credit unions who might fail to meet the new standard by the September 2009 deadline but did not specify them.

“Introducing the new measure at this time of economic recession, when members need more support, not less, from their local credit union would have been catastrophic for both the credit unions affected as well as individual members.”

The Irish Examiner has learned that the ILCU has also lobbied Mr Lenihan, proposing the creation of a central liquidity fund for credit unions.

“The absence of such a structure could mean that credit unions in need of short-term liquidity would not be able to access funds. The liquidity fund would accept deposits from credit unions. In order to eliminate risk for credit unions investing in the central liquidity fund the ILCU asked that the department consider guaranteeing the funds invested by credit unions and the loans made to credit unions,” Mr Brennan told Mr Lenihan in correspondence.

Mr Brennan told individual credit unions this week the department has convened a working group composed of all relevant stakeholders, including the registrar of credit unions, and a number of meetings have taken place to discuss structure and governance arrangements.