Existential Threats to Credit Unions

WizardDr

Frequent Poster
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1,257
@24601 @cavanboy @bbari1

1. Its the central banks fault: In essence we were informed by no less than the Central Bank of a dire issue that a bail out of €500m was needed. We hjave heard no more about this fake news than we have heard about Donald Trump bringing jobs back. An eerie silence.

2. The Reserve Ratio does stop Credit Unions from taking money in on shares or deposits. There is no doubting that and it sets off a slow burning
fuse down the line where Credit Unions now have less than 25% lent out. This were severe restrictions on Credit Unions but there have been relatively few compared to the €500m that was er mentioned above.

3. 85 Credit Unions were doing mortgages of sorts according to Revenue as a year TRS was provided fro them.

4, This nonsense that mortgages are above the Credit Unions shoe size is often peddled. Now that the Law Society have altered the home loan process many of the risks in not getting title are resolved. Credit under writing is pretty straight forward. So much so that even the average can do it. I do not buy into the fake news saga.

5. Buy to Lets - the issue here was that the State grabbed USC and PRSI and Tax from the only asset a family might have. Generally speaking if there were relatively low LTVs there were few issues. To close this market off to Credit Unions (all of them) is simp;ly another overreaction and in any event not all in the Central Bank actually agreed with it.

6. The last Report on CU AML was a stand out because the CBI never raised the question of inadequate checks on the main business. Why would they do that when the Sector is responsible for 22% in the only DoJ report I could find.

7. Being the most trusted Brand should mean that they should be able to take my shares to at least €100k/

8 . The Central Bank do not take criticism well but we know they read these.

9. Why are CU Accounts not available as opposed to having to locate them at each Credit Union? Fundamental Analyst might go through them
and the overcooked Regulations.
 

EmmDee

Frequent Poster
Messages
553
@24601 @cavanboy @bbari1

2. The Reserve Ratio does stop Credit Unions from taking money in on shares or deposits. There is no doubting that and it sets off a slow burning
fuse down the line where Credit Unions now have less than 25% lent out. This were severe restrictions on Credit Unions but there have been relatively few compared to the €500m that was er mentioned above.
Can you explain this to me - why would a business look to increase non-performing assets. I work in banking (not Irish domestic) and we went through the excercise of reducing expensive non-performing client deposits about 5 or 6 years ago and we are pretty analytical about what we take now.

If the problem for a Credit Union is the lack of performing lending in relation to the deposits, then the solution is to increase lending or reduce deposits. Not the ratio
 
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24601

Frequent Poster
Messages
226
@24601 @cavanboy @bbari1

1. Its the central banks fault: In essence we were informed by no less than the Central Bank of a dire issue that a bail out of €500m was needed. We hjave heard no more about this fake news than we have heard about Donald Trump bringing jobs back. An eerie silence.

2. The Reserve Ratio does stop Credit Unions from taking money in on shares or deposits. There is no doubting that and it sets off a slow burning
fuse down the line where Credit Unions now have less than 25% lent out. This were severe restrictions on Credit Unions but there have been relatively few compared to the €500m that was er mentioned above.

3. 85 Credit Unions were doing mortgages of sorts according to Revenue as a year TRS was provided fro them.

4, This nonsense that mortgages are above the Credit Unions shoe size is often peddled. Now that the Law Society have altered the home loan process many of the risks in not getting title are resolved. Credit under writing is pretty straight forward. So much so that even the average can do it. I do not buy into the fake news saga.

5. Buy to Lets - the issue here was that the State grabbed USC and PRSI and Tax from the only asset a family might have. Generally speaking if there were relatively low LTVs there were few issues. To close this market off to Credit Unions (all of them) is simp;ly another overreaction and in any event not all in the Central Bank actually agreed with it.

6. The last Report on CU AML was a stand out because the CBI never raised the question of inadequate checks on the main business. Why would they do that when the Sector is responsible for 22% in the only DoJ report I could find.

7. Being the most trusted Brand should mean that they should be able to take my shares to at least €100k/

8 . The Central Bank do not take criticism well but we know they read these.

9. Why are CU Accounts not available as opposed to having to locate them at each Credit Union? Fundamental Analyst might go through them
and the overcooked Regulations.
I really don't know where to start with this.
1. What has this got to do with the price of spuds? So what if the 500m wasn't needed? What exactly does this "prove"? (Hint: it's definitely not what you think it does)
2. This is complete and utter nonsense. The reserve requirement has absolutely no bearing on loans to assets. It doesn't "stop" them taking in shares/deposit, it just makes them ponder whether they should be taking them in when they can do nothing productive with them. Are you really arguing that the reserve requirement limits lending?
3. And your point is? I could be doing mortgages out of the back of my van, it doesn't say anything about whether I should be or whether I am doing them in a compliant manner that makes money. Plenty of credit unions gave money to developers in the Celtic Tiger years. By your logic this fact somehow proves that they should be financings developers.
4. You clearly don't understand credit risk to any meaningful degree. Either that or you're purposely ignoring the risks associated with loan concentration and the huge issues arising for mortgage lenders in the wake of the last downturn.
5. Good God.
6. What? Apart from this making no sense, a number of credit unions have been subject to enforcement action on AML. The 2015 Report highlighted endless weaknesses.
7. They can take your shares to at least 100k. That's literally the law. They may choose not to because they can't do anything with them.
8. See point 5.
9. See point 5.
 

24601

Frequent Poster
Messages
226
Can you explain this to me - why would a business look to increase non-performing assets. I work in banking (not Irish domestic) and we went through the excercise of reducing expensive non-performing client deposits about 5 or 6 years ago and we are pretty analytical about what we take now.

If the problem for a Credit Union is the lack of performing lending in relation to the deposits, then the solution is to increase or reduce deposits. Not the ratio
He doesn't appear to have an understanding of basic asset-liability management. It's tedious at this stage.
 

Brendan Burgess

Founder
Messages
42,186
2. The Reserve Ratio does stop Credit Unions from taking money in on shares or deposits. There is no doubting that and it sets off a slow burning
fuse down the line where Credit Unions now have less than 25% lent out.
Dr. Could you explain this me in numbers.

Take a typical credit union today

Loans to customers 100
Cash in the bank 300

Financed by
Reserves 80
Members' shares 320

The Big Bad Fake News Central Bank says that they must keep reserves of 10% of total assets.

So they need 40 in reserves. So no problem.

Their marketing is brilliant and their customers want to borrow another 100

So the total assets remain at 400 and the reserve requirement remains at 40.

It's not stopping this credit union lending money.

Example 2


Loans to customers 100
Cash in the bank 300

Financed by
Reserves 20
Members' shares 380

Now this credit union has a 5% Reserve Ratio.

But it can resolve this by returning 300 to its members

Now the balance sheet is
Loans to customers 100

Reserves 20
Members shares 80

I presume you would agree that the reserve ratio should be at least 10% of loans?
 

EmmDee

Frequent Poster
Messages
553
What is a non-performing deposit? (Excuse my ignorance)
A deposit where I make no return on the increase in assets. A deposit costs me money as a bank (or CU). So I need to be able to get a return on that cash greater than the cost of holding it.

Taking customer deposits and sitting on them just increases expenses with no revenue
 

WizardDr

Frequent Poster
Messages
1,257
I really don't know where to start with this.
1. What has this got to do with the price of spuds? So what if the 500m wasn't needed? What exactly does this "prove"? (Hint: it's definitely not what you think it does)
2. This is complete and utter nonsense. The reserve requirement has absolutely no bearing on loans to assets. It doesn't "stop" them taking in shares/deposit, it just makes them ponder whether they should be taking them in when they can do nothing productive with them. Are you really arguing that the reserve requirement limits lending?
3. And your point is? I could be doing mortgages out of the back of my van, it doesn't say anything about whether I should be or whether I am doing them in a compliant manner that makes money. Plenty of credit unions gave money to developers in the Celtic Tiger years. By your logic this fact somehow proves that they should be financings developers.
4. You clearly don't understand credit risk to any meaningful degree. Either that or you're purposely ignoring the risks associated with loan concentration and the huge issues arising for mortgage lenders in the wake of the last downturn.
5. Good God.
6. What? Apart from this making no sense, a number of credit unions have been subject to enforcement action on AML. The 2015 Report highlighted endless weaknesses.
7. They can take your shares to at least 100k. That's literally the law. They may choose not to because they can't do anything with them.
8. See point 5.
9. See point 5.
I really don't know where to start with this
1. So the fact that a bogus report suggesting a rescue of €500m which ushered in the most Stalinist of controls is no big deal?
1A - Who produced the fake numbers to trigger this?
2. I said the taking of shares (increases liabilities AND assets) is limited the Ratio - FACT Eventually at the margin you could require additional assets to earn 10% which is not possible. In other words the build up of reserves means they are consolidated over years. When you get close to 10% ratio you must stop new savings or shares/ FACT
3.It is simply outrageous to say the back of the van. In facf they have better systems than some banks
4. I wasn't commenting on Loan Concentration but you have so what relevance has the Common Bond got today except a restriction on trade. Why are you not expanding the common bond? If you have 60% LTV a nuclear bomb wont take it out.
5. Another highly prejudicial answer
6. Let us call this out. There was little commentary on how CUs dealt with money, You would have thought this was the main issue in AML or that identification was an issue. This Report was silent on the main matters meaning that the Central Bank was satisfied with what it examined. It just does not actually say i The biggest offence it did raise was 'Club and Society' accounts. Anything bad it stated it. Kept silent on anything good. Read the Report again
7. They cannot take shares if they breach 10% ratio. Fact. So many of them the limit of €100k is irrelevant.
8. I hope you are not one of them
9. Why would the accounts not be on CBI website?


NOTE: Stop slagging off posters.
 

24601

Frequent Poster
Messages
226
I'm going to check out of this thread.
I really don't know where to start with this
1. So the fact that a bogus report suggesting a rescue of €500m which ushered in the most Stalinist of controls is no big deal?
1A - Who produced the fake numbers to trigger this?
2. I said the taking of shares (increases liabilities AND assets) is limited the Ratio - FACT Eventually at the margin you could require additional assets to earn 10% which is not possible. In other words the build up of reserves means they are consolidated over years. When you get close to 10% ratio you must stop new savings or shares/ FACT
3.It is simply outrageous to say the back of the van. In facf they have better systems than some banks
4. I wasn't commenting on Loan Concentration but you have so what relevance has the Common Bond got today except a restriction on trade. Why are you not expanding the common bond? If you have 60% LTV a nuclear bomb wont take it out.
5. Another highly prejudicial answer
6. Let us call this out. There was little commentary on how CUs dealt with money, You would have thought this was the main issue in AML or that identification was an issue. This Report was silent on the main matters meaning that the Central Bank was satisfied with what it examined. It just does not actually say i The biggest offence it did raise was 'Club and Society' accounts. Anything bad it stated it. Kept silent on anything good. Read the Report again
7. They cannot take shares if they breach 10% ratio. Fact. So many of them the limit of €100k is irrelevant.
8. I hope you are not one of them
9. Why would the accounts not be on CBI website?


NOTE: Stop slagging off posters.
Firstly, apologies for my tone. It was meant as tongue in cheek for the most part but I do find this Central Bank Fake News narrative tiresome. I am certainly not slagging you off. I wouldn't get so worked up about it. I think you are ignoring most of the arguments being made to you so I responded in jest.

1. It wasn't a "bogus" report. The human race is particularly bad at forecasting. You might recall our projected deficit for 2020 was 30bn just a few short months ago, it's 20bn now. The 500m figure was arrived at due to the relative weakness of the sector when the Commission on Credit Unions reported in 2012. The report noted:
The adverse economic conditions have resulted in a decline in credit union performance and have made it difficult for some credit unions to replenish reserves through retained earnings. As at 31 December 2011, of 403 credit unions that submitted prudential returns, 51 credit unions had total realised reserves less than 10% of assets and 25 credit unions could be considered seriously undercapitalised (less than 7.5%) 1 . At that time, 352 credit unions (87%) held at least 10% of assets as total realised reserves .

You might search for some sort of conspiracy in the 500m figure but there is none. You can definitely make the argument that the sector was far more resilient than expected and that the self-funded bailout scheme was effective. Plenty of credit unions have drawn upon this fund, which in turn negated the need for state support. More generally, I do think the legislative framework is unwieldy. I wouldn't go as far as to say "Stalinist" though. It's a response to an industry that showed serious governance failures. Just because these were not on the same scale as the banks doesn't mean that credit unions were well run.

1A. I'm not 100% on the genesis of this 500m figure, but it's another distraction. I think it came from the Commission or from a stress test completed around the same time. I don't think it's the Trojan Horse through which the Central Bank disguised its evil legislative programme - indeed, it's the politicians that did that.

2. I don't understand the point you are trying to make. I also think a worked example of how the reserve requirement limits lending would be helpful. I fail to see how an industry with excess funding that it cannot lend this out is restricted in its lending by a 10% reserve requirement. Brendan's examples show this clearly. You have failed to engage meaningfully on this.

3. No, they don't. Some credit unions definitely have the capabilities to underwrite mortgages but this doesn't really address the risks at portfolio level.

4. You weren't commenting on loan concentration directly but your strategies to save the credit unions are to 1. dilute their capital base and 2. pursue types of lending that will lead to excessive levels of loan concentration. If credit unions want to go down the 60% LTV route, fair enough, but how do they compete at the lower rates offered by the banks in this market with such a high cost base and limited scale? IF you got rid of the common bond you might end up with one very large credit union covering the country with economies of scale - maybe you're onto something there.

5. Prejudicial? Really? I don't think the idea of credit unions doing BTLs is even worth discussion to be honest.

6. You're entitled to your opinions on this report. I don't draw the same conclusions from it that you do. The over reporting of suspicions does not really tell us a hole pile to be honest. For what it's worth I also don't think AML is major issue for credit unions any more. They are probably better at it than the banks given the common bond.

7. Yes, they cannot take in shares if they are undercapitalised. I see this as a good thing. You seem to want them to become even more undercapitalised.

8. You really have it in for the ould Central Bankers!

9. I don't know. I don't think it's a conspiracy. Most credit unions seem to put their accounts up online themselves. I don't think the CBI publishes the banks' accounts on their website either but I could be wrong.
 
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Brendan Burgess

Founder
Messages
42,186
9. Why would the accounts not be on CBI website?
Hi Dr.

I don't think that any regulated entity has their accounts on the Central Bank website?

I have asked different Credit Unions for their accounts over the years and they generally refuse on the basis that I not a member.

There were some who did publish their accounts on their website.

You should make a submission to the Central Bank to require all Credit Unions to post their accounts on their website.

Brendan
 

Brendan Burgess

Founder
Messages
42,186
Hi Coyote

I found looking at the individual credit unions interesting.

For example, many of them had loans which were at or below their reserves. So they could have returned all cash to their members and funded all their loans from their accumulated profits.

And that is what they should have done.

The development of this was that they could have operated with a reserve of 50% of their loans. Then the Central Bank could have applied a different set of very light touch regulations to these credit unions.

But the Credit Unions are not interested in changing. They will just blame the Central Bank for all their ills and not look at their own practices.

Brendan
 

Brendan Burgess

Founder
Messages
42,186
Hi again Coyote

I have used those aggregate figures as of March 2019 for what I did with individual credit unions

5046

In fact, they can hand back more cash as the net loans figure is probably only about €4 billion as some of those loans are backed by shares.

Now they have reserves of €3 billion on total assets of €6 billion or 50%.

They can still increase their lending by 20%.

The Central Bank would be able to sleep at night and apply a much less rigorous supervisory regime.

If an individual Credit Union has reserves of 50%, I wouldn't care if they allocated 20% of their total loans to mortgages. And nor should the Central Bank.

Brendan
 

Brendan Burgess

Founder
Messages
42,186
I meant to add that from my analysis, the Credit Unions seemed to be deriving a lot of their income from taking in deposits from members at 0% and putting them back on long term deposit elsewhere at, maybe, 2%.

So they did not want to give back these deposits.

Now they are in a very difficult position in that they can no longer use the deposits profitably. They pay nothing on them and they earn nothing on them.

They have some investments which they placed at fixed rates some years ago which are still in place. But when these mature, the Credit Unions will be snookered. And if the banks start charging negative interest rates to the Credit Unions on large deposits, it will make the position worse.

The Wizard is right in one thing - there is an existential threat to the Credit Unions - but it's not the Central Bank.

Brendan
 

NoRegretsCoyote

Frequent Poster
Messages
1,829
Hi again Coyote

I have used those aggregate figures as of March 2019 for what I did with individual credit unions

View attachment 5046

In fact, they can hand back more cash as the net loans figure is probably only about €4 billion as some of those loans are backed by shares.

Now they have reserves of €3 billion on total assets of €6 billion or 50%.

They can still increase their lending by 20%.

The Central Bank would be able to sleep at night and apply a much less rigorous supervisory regime.

If an individual Credit Union has reserves of 50%, I wouldn't care if they allocated 20% of their total loans to mortgages. And nor should the Central Bank.

Brendan
I think you're a billion out on the arithmetic in third line but otherwise completely right on substance.

As a whole the sector can sort out the problem of excess deposits by returning them to members, or indeed charging them for it.

Ultra-low interest rates are here to say and all sorts of financial firms have to figure out how to stay profitable.
 
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