Regulator queries funding in crisis plan

THE Financial Regulator has questioned if the Credit Union movement has adequate funding in place to meet a crisis head-on.

The Central Bank and Financial Services Authority of Ireland in a consultation paper looking at the long-term financial stability of the Irish credit union movement in the sector said: “We doubt whether the current arrangements would be able to cope with a widespread problem or indeed a series of individual problems over a sustained period of time in the sector.”

The paper also says that the current savings protection schemes (SPS) of €119m works out at less than 1% of the total assets of the movement.

Due to the rapid growth over the past decade, it says at this stage 22 credit unions control assets that are higher than the SPS fund currently in place to protect the stability of the entire movement and its members.

The proposals for the credit union stabilisation support scheme published by the regulatory authorities yesterday puts in train a consultation process on the options they say offered the best prospects for stability to the Irish credit unions into the future.

The Irish League of Credit Unions gave the proposed blueprint half-hearted support yesterday and called on all its 414 members in the ROI to make their submissions on the proposals directly to the Registry of Credit Unions.

“The ILCU is very proud of the existence of the Savings Protection Scheme which was very prudent and practical when it was introduced in 1989.

“It is a great shame that the financial institutions in this country did not take similar actions to safeguard us all from exposure to the state. In the interim we will continue to provide valuable services for savings and loans for our 2.9 million members.”

It added that it will be responding “formally” to the proposals in the weeks ahead.

The paper is called Stabilisation Support for Credit Unions, and is part of a series of measures aimed at modernising the regulatory regime for credit unions. The current system provides a degree of support for credit unions in difficulty, but “is not available to all credit unions,” in Ireland while there is the added problem of the fund not being regulated, the paper said.

In addition to the SPS, the statutory Deposit Guarantee Scheme guarantees members savings of up to €100,000.

In the current challenging economic conditions the consultation document says “it is important that there is complete clarity about the purpose, scope and availability of stabilisation arrangements”.

The document identifies how stabilisation arrangements might be modernised to better meet the needs of credit unions and their members. It also identifies important arguments for and against the availability of stabilisation arrangements, including those concerning moral hazard.

It puts forward six stabilisation models, that could be deployed in the future including the “status quo”.

Comments from stakeholders will be welcomed. Submissions should be made by August 16 and will be published on the websites of the Financial Regulator and the Central Bank.