John Perry (Sligo-North Leitrim, Fine Gael)
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Question 7: To ask the Minister for Finance if he is satisfied with the progress being made to find a satisfactory system for deposit protection in credit unions. [38802/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The extension of the deposit guarantee scheme to credit union savers on 20 September 2008 is an important development in safeguarding the interests of credit union savers because the €100,000 limit per depositor will cover the vast majority of accounts in credit unions. It therefore represents very significant progress in savings protection for credit unions. In this respect, the strengthening of deposit guarantee arrangements is a clear demonstration of the Government's obligation to protect the whole financial system, to secure its stability and to ensure that all deposits in all Irish financial institutions are safe.

In announcing the decision to increase the deposit guarantee level and to include credit union savers in the scheme, I stressed that the Government is committed to the stability of all of the Irish financial system, so that money placed with an Irish credit institution would not be at risk.

I believe that the measure provides additional reassurance to all retail depositors in Ireland particularly as the new guarantee level is now among the highest in the European Union. It was a particular priority for Government to look after the interests of credit union savers and to safeguard their competitive position in regard to the mainstream financial institutions, given the very important role played by credit unions in encouraging savings by all in our community.

The action taken by the Government is complementary to the continuing discussions between the Registrar of Credit Unions and the representative bodies for credit unions regarding broader savings protection arrangements. As Deputies will be aware, the existing Irish League of Credit Unions savings protection scheme, SPS, has played an important role over an extended period of time in helping to support credit unions that have experienced financial difficulties.

Stabilisation mechanisms, if properly designed and effectively implemented, can play a very important role in maintaining as a going concern a credit union that is experiencing temporary liquidity difficulties. It pre-empts the risk of failure and the need to activate the deposit guarantee scheme.

There is, however, a shared recognition between all stakeholders that these types of arrangements must be modernised to take account of the evolution of the overall regulatory and financial environment. It must be an objective for all relevant parties to work together on an intensive basis to come to a common position to the appropriate approach to credit union stabilisation for the future. My Department will, of course, continue to work with the registrar and the representative bodies to support the achievement of this objective.

Richard Bruton (Dublin North Central, Fine Gael)
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I have specific questions. The Minister will know that should the credit guarantee scheme be called upon the money is recouped subsequently from all those who participate, including credit unions. Is it preferable that the credit unions should be in a ring-fenced guarantee scheme? They are entirely different in their risk profile from any of the other institutions covered. They have, for example, twice as much in deposits as on loan, the opposite to the other institutions. If they were ring-fenced they would not have a contingent liability.

Second, there is a view from the League of Credit Unions that the savings protection scheme it now has should pay the premium into the fund for this protection and that it should continue to interface with the members. Does the Minister support this view? This would leave the savings protection stabilisation element as a core element and members would not say that because they had the Government's deposit they therefore do not need to be part of this. What is the Minister's view?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Deputy Bruton asked questions about legislation that is under preparation in my Department. One of the great difficulties is that there is not a unanimous view among the different credit unions in Ireland concerning how this matter should be approached. As Deputy Bruton correctly indicated, the League of Credit Unions has a particular view but there are other substantial credit unions outside the league that take a different view. The approach of the league has been to have a stabilisation fund which operates as a guarantee to the credit unions affiliated to it. The approach of certain other credit institutions has been that they want direct participation via the Central Bank or another appropriate institution with regard to the stabilisation moneys they save for deposit protection purposes.

There is no consensus within the credit unions about how to go forward in this area. I am anxious to devise a legislative solution that will accommodate the different concerns involved and that will ensure adequate protection exists for the depositor and adequate recourse will also exist for the taxpayer in respect of the funds that may be required.

Joan Burton (Dublin West, Labour)
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I understand the current level of total deposits in credit unions is between €13 billion and €15 billion. While the Minister may have a more accurate figure, the sum of money involved is certainly substantial. Given that most of this money is lent out conservatively because credit unions, unlike banks, have limited powers to lend and must operate differently from the banks, is it appropriate that banks and credit unions should be in a common guarantee scheme? Given that the savings protection scheme operated by the Irish League of Credit Unions has functioned well thus far, is the Minister implying that he proposes to abandon the scheme or will he produce legislation to maintain or modify it? Should the credit unions and banks be lumped together permanently in a one-size-fits-all scheme?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The position was that no guarantee was in place and the reason the credit unions were included in the guarantee is that I did not want them to be put at a competitive disadvantage to other financial institutions at the time the €100,000 limit was announced. I consulted the League of Credit Unions before making that decision.

Legislation being drawn up will have to embody the principle that the €100,000 guarantee given by the State can look to a designated fund. The issue is one of developing a consensus within the credit unions about the appropriate way in which the State can look to any particular fund.

Joan Burton (Dublin West, Labour)
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What is the Minister's estimate of the amount held in credit unions?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I do not have a figure to hand but I will arrange for the details to be furnished to the Deputy. I believe it is of the order of €12 billion.