Secondly, while the implication is that Mr. Noonan made this decision to help spread the risk of a CU relying on a few large depositors, I have not seen any evidence to proce that this was a significant or widespread concern within the CU movement. Have you seen anything to support the possible risk across the CU movement (and if so, could you please link to it) ?.
....The alternative would be to treat CUs as banks and apply Basel III to them - they'd all have to close. Would that be a better solution???
No commercial bank nor credit union should have a small number of depositors that, if they pulled their deposits, would cause the bank / credit union to be in trouble.
For example, Nationwide UK (Ireland) have a cap of 2 million EUR on deposits. Why? Nationwide UK (Ireland) want deposits spread over as many people as possible to prevent a few large depositors creating too much risk. Good risk management.
A credit union is a small organisation. Say 5 people held 200k in their accounts, and the credit union had 3 million in deposits in total. If those 5 people pulled their deposits, the credit union would be in trouble as the credit union is overly dependent on those 5 people. Just 5 people have 33% of deposits held. A massive risk.
Deposit risk weighting needs to be controlled, this is either done by the CU themselves or via regulation. I would not trust a lot of CU management to have the know-how to conduct deposit risk weighting themselves, as such I applaud Noonan's regulatory approach. That said, a more scientific approach could have been done. However, a more scientific approach could have caused much lower caps for some CU's. Therefore, on balance, Noonan has made the right move.
They don't want them because if they have surplus to requirements and lending demand they can't even get a good rate anywhere for the excess funds.
....Another reason is the fact that the CBI have put limits on how dependent a credit union can be on a small number of deposit holders.
Surely deposits constitute a liability rather than an asset, no?
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