Ms Carmel Motherway:

The other factor that comes into play is liquidity. Where there is this type of savings concentration, a credit union must watch the liquidity position very carefully, but that is not reflected strongly enough in the heads of the Bill. To the best of my knowledge, the main control in this regard is the requirement under the existing Act that one member cannot have more than 1% of the assets of a credit union as shares or deposits. The issue is the difference between 1% of a small number and 1% of a large number. Consider an example of what the commission referred to as a medium-sized credit union with, for example, 35,000 members which amounts to a large member base in itself but €100 million in assets which places it squarely in the middle of the range. While, for instance, 3% of the member base amounts to some 1,050 members, the restriction means they can hold up to €33 million out of a total asset base of €100 million. That is the degree of concentration about which we are talking. In the case of a credit union with fewer members, say, 30,000 but more than €200 million in assets, the corresponding figures would be some 900 members accounting for approximately €66 million. This is an actual as opposed to a potential problem which represents a grave underlying risk.

The question then arises as to how to address a situation where a credit union with smaller reserves might apparently be in a stronger position than a counterpart with greater reserves. From an operational perspective, we spend a large portion of our time seeking to assist credit unions to ensure they are compliant. It is not a very difficult task because most of them perform well in this regard. The bottom line, however, is that if there is a savings concentration problem, even if the union is very liquid, and if a sufficiently large chunk of the money wants to move, that credit union is in trouble. In fact, its capital reserves would not even come into play in that scenario and this is where we see the main risk. A factor to consider in this regard is that while one might assume it is older people who have worked and saved hard all their lives who hold most of the shares, our analysis shows that, in fact, the greater portion of members are people at the upper end of the economically active age bracket, that is, workers in the 45 to 60 years age bracket. Without wishing to be indelicate, the problem gets worse over time as members start to die. There is no guarantee that the next generation of a member's family will retain his or her money within the credit union. There are several good products on the market - I hate to advertise them - offering wonderful returns, notably the Exchequer-type products from An Post. If part of the job of a credit union is to do the best for its members, it could well be argued that we should be advising members who have a great deal of money invested with us that they could be getting a far better return elsewhere. In other words, if we do our job properly, we will make the problem worse.