Seán Sherlock (Cork East, Labour) | Oireachtas source

This is a timely and important review of the credit union sector, a sector which has served the people of Ireland well and which continues to deliver excellent services in an ethical manner in communities from which the banking sector, one could argue, is existing. Credit union directors, managers and staff have willingly adopted seismic changes in the four short years since the enactment of the last Credit Union Act. They have survived unrelenting regulation and universal restrictions at a time when the banks are still being allowed to get away with murder by their shared regulator, the Central Bank.

It is evident that the Central Bank is well advanced on its road to eliminating smaller credit unions while handicapping the medium and larger ones. The report calls for constructive engagement between the regulator and the regulated. It was evident during the hearings and has been evident since they concluded that this is not happening and will not happen. Shortly after the hearings wound up, the Central Bank issued a series of further restrictions on credit union deposit investments despite widespread opposition. Put simply, the Central Bank is actively limiting credit union investment options. This is the most powerful Central Bank in Europe when it comes to credit unions and it does not manage its power well. The joint committee recommended that a new appeal mechanism should be introduced to facilitate appeals of regulatory decisions to an independent body. This is long overdue and should now be pursued as a matter of urgency. The credit union directors and staff we all know are decent people. They have shown a great capacity for change yet we now witness a breakdown in the relationship between the all-powerful Central Bank and these decent people. I am very pleased, therefore, that the report suggests an alternative dispute resolution method. I am also pleased to see the recommendation in the report to make regulatory impact analysis a feature in the future. This is standard in developed regulatory jurisdictions and was a very firm requirement of the Commission on Credit Unions. Unfortunately, it has been ignored by the Central Bank.

It is disturbing to read in the report that the representative bodies raised serious concerns about the existing regulatory environment. Their view is that the current framework is disproportionate, too costly and burdensome, stymies innovation, restricts opportunities for credit unions to lend to and support members and communities and prevents the sector from receiving a fair return on investments. The Central Bank has stubbornly refused to introduce tiered regulation to make it proportionate to scale and complexity. I was perplexed by the Minister of State's statement that tiered regulation was the subject of consultation in 2013 by the Central Bank which proposed a two-tiered regulatory model to which the sector was not amenable at the time. He said it was unclear what form of tiered regulation the sector wanted. I am confused by that statement. The Minister went on to say that, in light of the feedback received, the Central Bank did not propose to introduce a tiered regulatory framework at that time. I do not doubt the bona fides of the Minister of State, Deputy D'Arcy, who was formerly a member of the committee. However, I am confused by his statement which warrants further interrogation.

The Central Bank's one-size-fits-all approach is a blunt and ineffective instrument. Volunteer directors and paid staff live in terror of the heavy hand of the regulator which knows it can push small organisations around, unlike our serial mortgage offenders in the banking sector. The cost of regulation is crushing and it is eroding credit union surpluses. The only people winning out in all of this are the so-called "expert consultants" who charge inflated fees to credit unions. Recent Central Bank speeches have focused on diminishing returns on assets, which is a small wonder given the range of penal regulatory charges, direct and indirect, the same bank imposes on credit unions.

A great deal of emphasis has been placed on the relatively low loans-to-savings ratio in credit unions. The main problem here is the cost of regulatory reserves. Every €10 lodged in a credit union costs it €1 in reserve costs. Here again, the Central Bank has refused to move to a risk-based reserving model which is 10% of loans rather than 10% of assets. Credit unions are saddled with a huge bill as a result. It should be remembered that members of the public decide voluntarily in the credit union which is, in an increasing number of cases, the only financial institution left in their communities. I am aware of credit unions which are refusing savings from members because they cannot afford the regulatory reserve costs. It is unacceptable that the Central Bank is so obdurate as to penalise members of the public in this manner. It is very poor regulation indeed which forces money to be hidden in mattresses and presses.

It was very disturbing to learn in the course of the hearings at the committee how many of the recommendations of the Commission on Credit Unions had been ignored by the Central Bank. It was seven in all. This is indicative of a culture of intolerance towards credit unions in the Central Bank. I highlight the support in the report for the retention of the common bond structure which is essential to underpin the community and democratic base of credit unions. The action which the Government most immediately needs to take on foot of the report is to establish a financial vehicle to allow credit unions to, at last, invest in tier 3 approved housing bodies. I note the Minister of State made some reference to this and we await progress.

I take this opportunity to ask the Minister about the status of the public banking investigation.

We have been told since before Christmas that the report is complete. We are awaiting its publication. This will also have an impact on the future of the credit unions' business model.

Are we content to have Ireland go back to a banking duopoly involving Allied Irish Banks and Bank of Ireland? Are we prepared to risk our entire society again by being held to ransom by these two institutions in any future global financial crisis? We need to defend and protect our society against such threats. We need to strengthen and expand our credit union movement. We need a vision for the sector from the Government and a framework for credit unions to move forward over the medium to longer term. The Government must establish a financial vehicle so the credit unions can at last invest in social housing. We await further word on that. The requirement of the Commission on Credit Unions for regulatory impact analysis must be also met. I welcome the committee's report. We hope its recommendations will be taken seriously.

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