Regina Doherty (Meath East, Fine Gael) | Oireachtas source

We have very good reason to be proud of our community based co-operative savings institutions. There are over 500 credit unions across the country and they have helped to promote the values of thrift in neglected communities, saving many from penury in the process. In the current crisis, banks are withdrawing from poorer areas and they are leaving credit unions as the main linchpin for ordinary people. Credit unions offer finance at competitive rates to members who have a history of saving with the credit unions in question. However, as with so many of our financial institutions, they were hit hard by the recession and I do not consider it an exaggeration to suggest our credit union movement is at a crossroads.

At the end of last year, 51 of our 404 credit unions were under-capitalised, 25 of them seriously under-capitalised. The publication of the Credit Union Bill strengthens the regulatory framework for credit unions and provides the basis for a restructuring of the sector over time in a way that is stable and that protects the credit union members. The Minister, Deputy Michael Noonan, said recently that credit unions are essential to our society and, while they had been hit by the financial crisis, he felt they had fared much better than some of our household banking names.

The Bill will bring about radical restructuring and closer Central Bank supervision. The process will be overseen by a restructuring board, ReBo, ensuring that the timetable for restructuring is delivered upon. Restructuring will not apply to all credit unions, however. Some will continue to operate successfully on a stand-alone basis provided they have a viable business model and meet regulatory requirements.

The Government is putting €500 million into this process to make sure it is effective. Crucially, the Bill affirms the power of the Central Bank to calibrate its regulation of the sector according to the nature, scale and complexity of the register of credit unions as the supreme word on questions of solvency, systems and controls. Effectively, the regulator now has unambiguous backing to treat credit unions as it treats banks, as Newbridge Credit Union learned in January when the Central Bank appointed an administrator to run it. The idea behind the new legislation is to create an incentive structure that persuades credit unions to merge into bigger, stronger entities, develop new expertise, sophistication and products, and overcome the systemic difficulties posed by the accumulated loan losses and asset write-downs that have ravaged their balance sheets in at least one of every eight institutions.

With at least 50 of our 404 credit unions holding less than the minimum amount of capital, reform is an urgent issue for their survival. This is a once-off opportunity for the credit union system to take steps that should probably have been taken 20 years or more ago. The process will develop structures and a business model that will make it sustainable for future generations.

The Irish League of Credit Unions, ILCU, has criticised elements of the legislation, particularly term limits on directors and other membership restrictions, as anti-democratic and an attack on volunteerism. I do not believe there is anything volunteers should be afraid of. The Credit Union Development Association, CUDA, has not objected to any of the new governance standards and has actually been lobbying for similar changes for many years. The Bill is about how we can have the maximum number of sustainable credit unions with the maximum presence possible. There are two main drivers for consolidation. On the one hand, it is a way of addressing the current weaknesses in the sector while, on the other hand, it is a business strategy for credit unions that want to achieve the scale necessary to move to a more efficient and sophisticated business model.

The credit unions are especially worried, as unsecured creditors, that they might be at a disadvantage to mortgage lenders with regard to the new Personal Insolvency Bill, where secured and unsecured debt are both at play. They are bracing themselves for heavy losses that could threaten their viability and thus perhaps force them into marriages of convenience with larger institutions. If ReBo begins its work this quarter as planned, the process should be well under way before the losses begin to mount.

The new rules are necessary. The local credit union is part of the financial mainstream these days and looks after millions of euro of members' cash up and down the country. However, greater sophistication and oversight will be better for savers and credit unions alike. It is imperative that the valuable work of credit unions continues at a time when ordinary people have rarely been more bereft of financial support and guidance.

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