President Higgins signs the Credit Union (Amendment) Bill 2022

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Well the massive misapprehension you are labouring under is that the development cost was huge and was incurred singly when it was incurred by a larger group of Credit Unions and wasn't huge. Your assertion that it is a while elephant does not stand up to scrutiny as digital services were not new to Credit Unions. The only way to alleviate you of your slight prejudice is to become a Board member of a CU [no fees sorry] and then see first hand what is actually being done. [This particular development was PAYAC and was run by a number of CUs and ILCU were not involved and was a most successful development].

I don't think that they developed it on their own and am aware it was a collaboration. It would have cost a huge amount of money to develop a current account solution so even with the burden shared each founding CU would have had a huge bill. Even if they did it for free they still only have 6% of members signed up, with it generating a loss nearly 7 years after development began and 4 years after launch. Not my idea of a "successful development" but definitely a colossal waste of time.

As regards the loan book concentration what in simple terms is being said is that the exposure is to the area and that the people working in the area also qualify for membership - there is not concentration in particular businesses except for non-community credit unions. Some of these were private sector employers e.g. Independent (now absorbed) most are gone, Some of the biggest would be Savvy (former ESB but now with an expanded common bond - see postings on mortgages for many of the common bonds) Heath Services Staff Credit Union (which is now the whole health sector and parts of CIE) St Paul's Garda Credit Union and St Raphael' Garda Credit Union. These credit unions have some very advanced processes as they do not have many locations (Garda one each) and are nationwide and don't rely on Pat the Postman. In any event Risk Management is well developed and CBI used to think that the losses after 2008 were €500mn or €1bn, In fact the losses never materialised but nobody talks about this.

OK forget about the common bond, it's just bad credit risk management to have a large proportion of your loan book concentrated in a small number of borrowers. Also, you seem very hung up on an inaccurate estimate regarding the level of losses. Fair enough, it was way off but credit unions definitely required enhanced regulation. I would agree that's gone too far but it's not like they were paragons of virtue.

It heralded the microscopic regulatory regime when in fact CUs were one of the few FI that didn't have catastrophic losses and this was without the 'changes' in 2012. Any of the 'failures' (was it three or four?) were such that they could have survived as one of the triggers was the regulatory reserve ratio being below 10% (which is three times higher than Banks) and in my view is not supported academically as the right level - which is more like 4% of total assets (without risk weighting). Had the ratio been at 4% Bank of Ireland would not have needed rescuing.

The 10% regulatory reserve requirement is a red herring. If it was that much of a problem for credit unions why are they maintaining ratios of 16 or 17% on average? It's a crude calculation, yes, but it's not hindering their development in anyway and has led to them being very resilient by being able to absorb very significant losses, which seems especially important when they're only able to lend out 30% of their assets.

 

[WizardDr]

I don't think that they developed it on their own and am aware it was a collaboration. It would have cost a huge amount of money to develop a current account solution so even with the burden shared each founding CU would have had a huge bill. Even if they did it for free they still only have 6% of members signed up, with it generating a loss nearly 7 years after development began and 4 years after launch. Not my idea of a "successful development" but definitely a colossal waste of time.

Credit Unions have not always been successful in collaboration e.g. ISIS cost millions and failed and was led by ILCU. There were in fact two current account developments and the one I have referred to is PAYAC with Mastercard and was led by a small number of CU CEOs. The development required was to have an account in CU reflecting transactions. It didn't take 7 years and by all the accounts I have heard was a success. Both Wellington IT and Progress Systems (the two main providers) developed the system back-end and CU account. They obviously did not develop the card and the worldwide capability. The pity was that there were two developments when one would have been sufficient but that is politics.

OK forget about the common bond, it's just bad credit risk management to have a large proportion of your loan book concentrated in a small number of borrowers. Also, you seem very hung up on an inaccurate estimate regarding the level of losses. Fair enough, it was way off but credit unions definitely required enhanced regulation. I would agree that's gone too far but it's not like they were paragons of virtue.

Being hung up on the level of losses is significant for it was used as the only basis for significant extra regulation. The evidence used transpired to have been at worst based on incorrect assumptions about the future predictions about catastrophic loan losses. As regards paragons of virtue this may be based on a number of small cases that were highlighted in the media. Considering that there used to be 400 independent companies this is like saying that 4 GAA clubs with bad records represents the rest.

The 10% regulatory reserve requirement is a red herring. If it was that much of a problem for credit unions why are they maintaining ratios of 16 or 17% on average? It's a crude calculation, yes, but it's not hindering their development in anyway and has led to them being very resilient by being able to absorb very significant losses, which seems especially important when they're only able to lend out 30% of their assets.

The red herring as you call it was the ability to force some credit unions out of business and was also used to convince smaller CUs that they could not survive - which was not correct as the 4% ratio would have been sufficient. The fact that these reductions in the number of credit unions did not attract much media attention is unfortunate, but the numbers fell to 200 from 400. When so many lending opportunities are denied because of restrictive rules brought in on wrong estimates of catastrophic future losses I can see where you are coming from. So let's be very clear. The 10% reserve ratio was used to close down and merge credit unions on the wrong catastrophic assumption that they were unviable. If a Director believed the story (which many sadly did) then they would have been obliged to act in the best interests of the credit union which if they believed was unviable would have meant closure or amalgamation with others. This is their fiduciary duty. Only a few ran the gauntlet and whenever legal proceedings occurred the inequality of arms was striking.