Interim Report of the Commission on Credit Unions

This report is available here.

12 replies on “Interim Report of the Commission on Credit Unions”

Under the provisions of this Bill, it is proposed that the assets and liabilities of a financial institution that is under a resolution process can be (1) transferred to another institution or (2) transferred on a temporary basis to a ‘bridge bank’ with a view to transferring them to another institution

The Commission notes that it is
proposed that the Minister for Finance may, at the request of the
Central Bank, provide a financial incentive to a credit union to accept
the transfer of the assets and liabilities of another credit union.

They’re going to merge the credit unions. The net effect of this is that reckless credit unions (and their executives), who lent and gambled wildly on the property market–probably mostly in the buy to let sphere–will be rewarded with a bail out; and responsible credit unions who borrowed and lent prudently, who never lost their heads, will be punished for not gambling on the housing market.

And all so that no financial institution is allowed to fail. We must all be spared from the apocalypse of atm shutting chaos that would ensue if a single local BallyFoxBrook Credit Union was liquidated like any other bankrupt business. Yes indeed, this wouldn’t be like, say, Home Payments or something no. This would affect the savings of actually middle classes. We can’t be having that.

The moral of this story is clear, as with Nama, the banks, etc. Lend recklessly, gamble, chance your arm, commit fraud, etc, etc, etc, and you will reap the rewards and have your losses paid for by the suckers who were too stupid, too principled, or too responsible to break the rules and make it up as they went along. Why buy the cow when you can kill it, eat the meat, sell the bones for glue, and when winter comes simply get the government to force your prudent neighbour to share the milk from his cow with you while the rest of the village pays the bill for the one you killed.



Failing CU’s shouild be allowed to fail, not hamper the good ones. Imagine if the failing PR company down the road was forced on me by the government. I would have to take on their debts, outgoings, problems with clients and crap management team. Joy. It is just not logical but of course, someone is gaining by doing this. Ireland is full of chancers pulling stunts.


When the banks get those wooden stakes through their bleed1n hearts – we will need our credit unions, even if only for bartering purposes.



With about 2.5 million members and a 67% penetration rate versus UK 4%, Ireland was in a position to let the banks fail. The credit unions could have been used in emergency to keep cash flowing in local economies.

I would keep and strengthen the CU. And I would insist on using the bank bailout money to do it.
There are a very important part of the local economy.
And this EZ banking crisis has barely started yet.

The commercial banks just want to eliminate competition – notice the history of foregin credit unions when they enter under the umbrella of official financial services regulation – they died a slow death.
Given how much the money supply has contracted I think they have cost the taxpayer very little in insurance costs – their real leverage is far less then our commercial banks as they are far simpler more organic operations.

I note with some alarm the push to include more “professional” financial-services types in the credit union movement – it strikes me that there would be no better way to engineer a near-future meltdown in the union movement (look at what these parasites have already done to the banks).

The root of credit union problems go back to 1997 when McCreevy in amending the Trustee Investments Order – which also governed credit union investments – unwittingly widened the range of credit union investments.

A second causative problem occurred in 2002 after the unions won their battle preventing McCreevy & the DoF from applying DIRT to ordinary share accounts. McCreevy predicted these would be abused – he was probably right. Today 95% of credit union deposits are in dividend earning share accounts of which 80% remain non-DIRT accounts.

In 1999 credit union loan to total assets ratio was on average 62%. The benchmark performance ratio is 70%+. By 2008 this key ratio had declined to 48%. Today it’s just 42%. New lending has collapsed by 25% yoy since 2009, hard core arrears are €1bn – provisions €680m, ROA is down from 3.0% to 0.90%.

As funding (savings) grew in the naughties, helped by favourable tax treatment, unions lending couldn’t keep pace – due to strong funding flows in excess of market norms and poor quality, high lending products. People could borrow money from a variety of more efficient and cheaper sources.

Pursuing a dividend maximisation strategy, to maintain high dividend pay-out rates, the unions’ investment portfolios grew riskier as they chased higher yield. Their trade body ILCU promoted a high yield investment strategy ably assisted by its partner Davy.

Captive of an aging savers mandate, their boards and managers, in pursuing a dividend maximisation strategy, minimised reserves and investments in improving operational efficiencies. They also ploughed millions into non-productive ostentatious new offices.

Eye off the core lending business ball – most unions had morphed into investment & loans firms by 2006. Their loan portfolios took on a sub-prime pathology, as better risk customers shopped elsewhere for credit leaving credit unions lending only to lemons – to keep loan volume ticking over, they funded first-timer down payments, small scale local businesses and property speculators/developers. In some cases influential directors who were local business peoples or were close to local business interests used the credit union as a private bank.

By 2005 loan delinquency as calculated using an obsolete standard were way too high. 70% of unions reported delinquencies above safe threshold limits – but their provisions were too low. Regulatory inspections found that loan loss provisions and loan accounts were being manipulated to maintain dividend pay-out rates.

Legal balance sheet restrictions on term and volume lending and deposit limits were also being breached by a number of larger operations. Their supervisors and auditors were providing clean bills of health to known high risk maverick operations.

Credit unions were quite seriously financially fragile by 2008 – with operating costs far too high, revenue dependent on high risk unsecured lending and investments, they were hit with the double whammy when global asset values plummeted in vale and the recession kicked off.

Was all this predictable? Yes – well before 2008 the business model had been subverted, boards and managers were lacking needed professional competencies and non-compliance with legal risk minimisation limits was endemic. Unions had become upside-down pyramids – even a small external shock would have knocked many of them over.

Was it preventable? It may have been had their regulator been listened to and provided with the powers it needed to reign in risk taking.

According to to the latest troika review, Minister Noonan has pencilled in an initial €250m for Q4 this year to fund credit union stabilisation. I reckon these funds are required to deal more than the 27 “seriously” under-capitalised unions written of in the commissions report.

The existing SPS has had contributions from NI CUs. If the SPS is to be appropriated into a CBofI directed fund, with some of it going north according to Charlie Weston in the Indo, how is this to be divvied up?

At least CUs had a system, where the ILCU could intervene in troubled institutions with loan guarantees, technical assistance and increased supervision and a fund which was paid into in the good times and not just after the deluge. Clearly it was not successful in preventing poor practices but at least some bad outcomes were prevented. Contrast with the banks – where was their rainy day fund? How many technical staff did the bank regulator impose when iffy practices came to light before the crash?

Perhaps the ILCU could get the Occupy movement to do a bit of work for them, encouraging people to close bank accounts and open CU accounts (as in the US) so net inflows will assist CUs shackled by regulator edicts to only loan out what comes in (and be damned to any “AAA” member who needs a loan the week that deposits and repayments are light).

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