Credit Unions to launch new mortgage product, but...

Brendan Burgess

Hi Dr

I am surprised that you don't understand how the bank guarantee worked. Having said that, very few people in the country do understand it.

Lending books were not shored up for anyone - banks or credit unions.

The Credit Unions' deposits in the banks were given an unlimited open-ended guarantee by the government.

Just in case you studied under Brian "sell the deposits" Lucey, I will explain the basics.

A credit union deposit in the bank is an asset for that Credit Union.
A credit union deposit in the bank is a liability for the bank.

The government guaranteed the banks' deposits. Had they not done so, the Credit Union's assets i.e. deposits in those banks would have been written off or written down.

The result would have been catastrophic for the Credit Unions. Their assets would have been reduced significantly and many would not have been able to meet their liabilities.

Again, apologies for spelling it out, but the Credit Unions' liabilities are their members' savings and share accounts.



Frequent Poster
You are avoiding the issue. For the avoidance of doubt it was ALL the Deposits not selectively those of Credit Unions.

The Deposit issue they certainly benefited from BUT that was not a measure for them specifically.

If they had reckless lending as you and others said that destruction of those assets would have to come from Reserves and as you know that is on the Liability side and the only other liability is shares and deposits would you accept that?

Next if the Reserves were not adequate they were deemed such that the Shares / Deposits were then de facto at risk.

How many Credit Unions then fell because of that? Start with the 400 and name more than 5%.


Frequent Poster
How many Credit Unions then fell because of that? Start with the 400 and name more than 5%.
I normally read with interest your posts on the Cedut Union sector, but I have to ask, do you honestly believe that if the CBI hadn't intervened, that we wouldn't have seen more CU's collapsing?

I agree that some of the measures were heavy handed, and a blanket approach hurt those that had managed their business well.

However, of the 30%+ of credit unions which have merged with others, how many of those would have survived if left on their own?
Remember in early 2013, 50 credit unions have reserves under 10%, and the sector had over 1bn in arrears.


Frequent Poster
Let me very clear here. The Reserve Ratio that was invented by CBI at 10% of total assets and was not based on anything other than to force consolidation with a made up figure, noting that no regard what so ever was taken of what kind of assets. As Mr Burgess kindly pointed out there are Loans, Investments and Deposits with Banks. Also CBI blocked any capital raising and 'share capital' was deemed to be 'savings' and therefore not capital in the ordinary sense of the word.

In all the academic research I have read, the largest ratio that is viewed as extremely prudent is 4% of total assets. Just for clarity had Bank of Ireland retained that ratio it would not have required rescuing.

The Central Bank took action on every CU below 10%.

For the avoidance of doubt a Credit Union with €10m in assets with 70% lending is viable.