Ms Anne Marie McKiernan:

I share Senator Horkan's view that the credit union sector is a valuable part of our communities and society. We want to see it thrive and continue to be an important part of our financial system going forward. We do that within the context of my statutory remit, which is to ensure the protection by credit unions of their members' funds, and also the financial stability of the sector more broadly. We orient all of our supervisory and regulatory activities around working towards having the sector be financially viable in the future.

I will address the 10% reserve ratio and how that came about. It is generally considered to be a minimum capital adequacy ratio as recommended by the World Council of Credit Unions. That World Council of Credit Unions also advocates that, for credit union sectors that might consider moving to a risk-weighted approach for the capital ratio, it should really only apply where credit unions are competing directly with banks that adopt the Basel III rules and where they and their supervisors thoroughly understand how to calculate capital under pillar 1 of the Basel III rules. We are not in anything like that kind of credit union sector and because of the generally homogeneous and less complex business model of Irish credit unions, we believe that a non-risk-weighted approach is fully reasonable in the circumstances.

The 10% ratio was introduced in 2009 and there was an opportunity for consultation on that. Significant support came from sector respondents at the time for the concept of maintaining strong reserves. There were some concerns on implementation timelines etc., but overall, moving to having a strong financial resilience layer like that was supported. It is a loss-absorbing layer. It is there to give credit unions a backstop to ensure that they are still able to protect their members' funds. We should always come back to what its purpose is and make sure that it can do that. My view is that it remains appropriate for the sector and that we would want to see reasonable financial resilience in a sector which is contemplating taking on riskier forms of business model and development into the future. The majority of credit unions are well above that level. The average across the sector is currently 16%. Credit unions themselves recognise that they need to have a strong loss-absorbing layer for both their current activities and prospective future ones.

In the UK, credit unions with assets over £10 million sterling must also hold capital of 10% or greater. They have a situation where they can use a buffer of potentially 2%. In other words, they can eat into the 10% as long as they go back up towards it again within a specific period of time. The average sector ratio in the UK is well above the required minimum.