Martin Heydon (Kildare South, Fine Gael)

In debating this important Bill on Second Stage I will concentrate on the credit union movement. It should be remembered that this legislation applies to authorised credit institutions, which include banks, building societies and credit unions registered under the Credit Union Act 1997. In discussing the wide range of powers being granted to the Central Bank under the Bill and the establishment of the resolution fund we should reflect on the impact these powers may have on local credit unions. We should also ask whether our national credit unions require the same regulatory regime as the large national banks, many of which are in State ownership.

Credit unions are the life blood of communities in many of the local areas where they operate. Members of the public who may never enter a large banking institution can have all their financial requirements met by local credit unions. Services provided include savings plans, insurance services and loans for up to five years duration. The credit union movement was established in the 1950s in Dublin in response to the effects of high unemployment at the time. According to the movement's promotional information, its founders "recognised the root of the problem as lying in the scarce availability and poor management of money and resolved to identify a system that would allow people to gain more control over their finances". Sixty years later, we are in a similar position, one in which the credit union movement could play a significant part in the recovery of the country and return to financial independence for many individuals. While the credit union movement has not been unaffected by the financial difficulties of recent years, it is impossible to justify treating each small community-based credit union in exactly the same manner as a bank which brought the burden of billions of euro of debt on the country.

My main concern is that we are moving from a position in which the Minister for Finance enjoys significant control to one in which the overwhelming control is handed over to the Central Bank and Financial Regulator. The lack of political oversight into this process is not a healthy change for the credit union movement.

Section 8 deals with intervention conditions, an area in which we need to ensure some control or oversight is retained. For example, section 8 provides that the intervention conditions are fulfilled in relation to an authorised credit institution if either condition A or condition B is fulfilled and defines condition A as follows:

(2) Condition A is that the Bank has serious concerns relating to the financial stability of the authorised credit institution concerned

and—

(a) has directed that credit institution to take particular action to address the Bank's concerns, and the Bank is satisfied that—

(i) the credit institution has failed to comply fully with the direction, or

(ii) the credit institution is incapable of taking the necessary action to so comply within the period specified by the Bank in the direction,

or

(b) is satisfied that, having regard to the urgency of the situation or for any other reason, its serious concerns cannot be adequately addressed by such a direction.

The words "for any other reason" leave the options to the absolute discretion of the Central Bank. What constitutes serious concerns for the Central Bank? If an institution such as a small credit union is unhappy with a decision of the regulator, what options are open to it to challenge the Central Bank's view of an issue of serious concern? Its only recourse would be to challenge a decision through the courts. However, if a small credit union were to mount such a challenge, its members would likely lose confidence and withdraw their savings.

Already, the Registrar of Credit Unions has gained substantial powers over all small credit unions to the extent that he can chose board members, block or cancel annual general meetings, set the size and scope of a credit union and set dividends and rebates. The rules being used to deal with credit unions are the same as those being used to deal with large banks which handle billions of euro. It is important to note that in 2010 only a small percentage of more than 400 credit unions applied for assistance in the form of loans. Credit unions are not the same as banks and should not be treated as such. With the inevitable consolidation in our financial institutions arising from mergers and other transactions, a growing need is emerging for a trusted community-based organisation which retains the confidence of many of its customers and can regenerate confidence in the economy.

We should remember the central reason for founding credit unions, namely, that it is an organisation of people, for people which exists only to serve its members rather than to profit from their needs. In the 1950s, the founders of the credit union movement recognised the serious difficulties and lack of confidence caused by mismanagement and a lack of money and resolved to establish a system that would allow people to gain more control over their finances. Credit unions have a promising future. We need to ensure the legislation and regulatory framework that is created to secure their viability is specifically suited to them and allows them to continue to function as was intended. If we do this, credit unions will be able to continue to grow and flourish and become one of the building blocks for economic recovery from a local level upwards.

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