Mr. Seamus McCarthy:

Each of the accounts before the committee this morning relates to a fund or body created since 2011 to facilitate the resolution of problems in credit institutions, and in particular, in the credit union sector. All three accounts for the period ending 31 December 2013 received clear audit opinions.

The Credit Institutions Resolution Fund was established in October 2011 to hold funds for use in resolving situations where a licensed credit institution becomes financially unstable, or where there is an imminent serious threat to its financial stability. The general statutory framework for dealing with such situations is set out in the Central Bank and Credit Institutions (Resolution) Act 2011, as amended. The fund is managed and accounted for by the Central Bank.

The primary source of funding for the Credit Institutions Resolution Fund was an advance of €250 million from the Central Fund of the Exchequer, made by the Minister for Finance in December 2011. The liability for repayment of this advance, and the related interest, is recognised on the fund’s balance sheet.

Under the terms of the 2011 Act, the Minister also made regulations in September 2012 requiring authorised credit institutions to make periodic contributions to the fund. The income from such levies in 2013 amounted to €9.6 million. The total levied to the end of 2013 amounted to just over €12 million.

Up to the end of 2013, the fund had financially supported resolution action in relation to just one credit institution. This involved the transfer, following High Court approval in November 2013, of assets and liabilities of Newbridge Credit Union to Permanent TSB PLC. The credit union’s premises in Newbridge were not included in the transfer, and remained with the liquidator of the credit union. Net proceeds from the disposal of the premises are payable to the fund.

As part of the formal agreement for the transfer, a cash incentive of €23 million was paid out of the fund to Permanent TSB. Together with other expenses, the total costs charged to the fund in relation to resolution of the financial difficulties in that credit union amounted to €25.57 million as at the end of 2013. However, Note 8 to the financial statements records that there are potential additional costs amounting to €28.3 million arising from the Newbridge agreement. The officials from the Central Bank will be able to provide the committee with an update on the costs of that and other resolution activities.

The credit union fund was established under the Credit Union and Co-operation with Overseas Regulators Act 2012, to provide a source of funding for activities related to the restructuring of credit unions. This includes provision of financial support for the stabilisation of credit unions, at the request of the Central Bank, and funding to meet the expenses of the Credit Union Restructuring Board.

Under the establishing legislation, the fund is administered and managed by the Minister for Finance. His Department prepares the account of the fund, which is in the form of a cash receipts and payments account, with a closing balance. The account before the committee today relates to the period from the establishment of the fund on 21 December 2012 to 31 December 2013.

Following its establishment, the fund received an initial contribution of €250 million from the Central Fund of the Exchequer in December 2012. The only payment made out of the fund in 2013 was an advance of €750,000 to the Credit Union Restructuring Board, to fund its activities.

The board was established on 1 January 2013 under section 42 of the 2012 Act, which also set up the credit union fund. The primary function of the board is to facilitate and oversee the voluntary restructuring of credit unions. The Act envisages that the board will be wound up when its functions have been completed — there is a ‘sunset’ provision in the Act, which requires the Minister to carry out a review by 1 January 2016 to determine whether or not the board has completed its functions.

The board’s first set of financial statements cover the 2013 financial year. Its main source of income was the draw-down from the credit union fund. In 2013, the board used around €693,000 of the €750,000 drawn down from the fund.

In accordance with section 47 of the 2012 Act, the board is required to make regulations for an annual levy payable by credit unions. The proceeds of the levy are intended to equal half of the cost of the board’s activities, and must be paid over to the credit union fund. No levy regulation has been made for 2013, and no levy income for the year is recognised. Note 2 indicates that the board intends to make levy regulations before the end of this year.

Approximately 65% of the board’s expenditure in 2013 related to staff costs. A further 17% was incurred in relation to board costs. The remaining 18% covered administration, IT and communications costs, legal and professional fees and bank-related charges.