It is, perhaps, a parable of our times to see one failed financial institution take over another.
The High Court has acquiesced to a request from the Central Bank for Permanent TSB to take over the running of the insolvent Newbridge Credit Union in Kildare. It is the first time that a bank has taken over a credit union, which is a not-for-profit organisation. Some €54m in taxpayers’ money will be needed to keep it afloat.
A demonstration took place yesterday outside the credit union offices following the announcement. It was organised by the Newbridge Credit Union Action group which said it would lodge an immediate appeal.
The likelihood, though, is that the decision will prevail as there was little alternative. The credit union was at risk of going into liquidation if the transfer had not been approved.
Newbridge, the largest community-based credit union in the country with 37,000 members, has been run by a special manager since Jan 2012 after it emerged that it had debts running to tens of millions of euro.
Nonetheless, the decision by the High Court will cause serious concerns for the 3.1m people who are members of the 521 credit unions around the country.
That it was done in secrecy, late at night, and outside court hours is also reminiscent of that catastrophic late night decision in 2008 to bail out the banks.
However, given the precarious financial position of NCU, the alternative could have been much worse. There were already signs of a run on the credit union with an average of €76,000 taken out by members every day since last July.
More importantly is the effect that liquidation would have caused. Even though it represents a tiny portion of Ireland’s financial services, the collapse of a single institution could cause a crisis in confidence and contagion across the whole credit union sector. This would have likely caused instability in the banking system. Even the smallest threat to the country’s fragile financial system would damage our economy and possibly put our exit from the troika bailout in jeopardy.
The immediate priority now for the Government and the Central Bank must be to ensure that NCU is made viable again, that its financial situation is stabilised and that all savings are secure.
However, it must also do this in the context of returning the institution to the control and ownership of its members as soon as is prudently possible.
Credit unions are community based and locally controlled institutions set up for the benefit of members. Unlike banks, they adhere to co-operative principles. With a credit union you are a stakeholder. With a bank you are simply a customer of an institution whose first order of business is to make profits for its shareholders.
Credit unions have served us well since they were introduced here in the 1950s, a period of great poverty in Ireland. They have ensured that hundreds of thousands of less well-off people can gain control over their finances in an environment designed not for profit but for their needs.
More than five decades of good deeds must not be lost by a single failure. After all, Permanent TSB had to be bailed out by the taxpayer to the tune of €4bn.
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