Patrick Nulty (Dublin West, Independent)
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I thank the Minister for Finance for attending the House to address this important issue. I wish other Ministers would follow his example. The Newbridge Credit Union situation has prompted a major debate about the future of credit unions and the financial sector generally. It must be acknowledged that the credit union movement has played a crucial role in communities. The Minister should make a clear statement about the future of credit unions and the Government's confidence in and commitment to that movement. He should reassure ordinary families with credit union deposits and loans that they are safe and secure.

According to press reports, one in five credit unions are in shallow financial waters. A few days ago, the Irish Independent reporter, Charlie Weston, said the same thing. The Minister has his finger on the pulse but he needs to make a clear statement about what is happening with credit unions.

The situation in Newbridge Credit Union is unique, given that it was based in a building that was once valued at €3 million. That will come as a shock to many credit union members. Is this the thin end of the wedge? Is it an outlier or is it indicative of a liquidity problem concerning the balance between credit union loans and deposits? What is the future for the credit union movement in Ireland?

Can the Minister outline the Government's vision for the credit union movement? Can he spell out a policy for dealing with credit unions that encounter difficulties? Is Newbridge the only credit union in difficulty? Will there be more and, if so, when will information be available to the public? Does the Minister see credit unions as an integral part of the Irish financial sector?

The Minister's constituency is similar to mine and he knows that the credit union movement is the wall between families who need credit and moneylenders who seek to exploit the injustices and inequalities in our society. The credit union movement is crucial in that respect.

Can the Minister ensure credit unions will be independent and not merely subject to takeover by banks? Is the Permanent TSB situation unique and not to be repeated?

Billy Timmins (Wicklow, Independent)
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I thank the Ceann Comhairle for selecting this matter for the Topical Issue matter. I also thank the Minister for attending the House. At a time when we are increasingly sceptical of the media, I acknowledge the role of local radio in this regard, including East Coast FM, which is my local station. This morning I listened to the Clem Ryan Show on Kfm Radio in Kildare, and he approached this subject in a most pragmatic, fair and reasonable manner. The winding up of Newbridge Credit Union is a very emotional subject in Kildare.

As well as the Newbridge situation, there is the broader national question concerning credit unions. It is clear things were not right in Newbridge and the difficulties were first identified by the Central Bank back in 2004. That speaks volumes for that organisation and its effectiveness in addressing the difficulties concerned. If it had acted in a more professional manner at the time, the credit union may have been saved.

I understand a meeting will take place tonight between the board of directors and members. I urge members to hasten slowly. It is important that the volunteers get out their message in regard to what happened over the past number of years. This is a unique situation with regard to Permanent TSB. It is difficult to visualise how it will be progressed. Is there a learning curve for everybody or has Permanent TSB and the Government a definite plan in regard to what will happen to Newbridge Credit Union? My understanding is that the building is in the ownership of the State. There is a desire on behalf of people in the area for a new credit union. I would welcome the Minister's view on this aspect.

With respect to the national issue, the message going out is that this is a unique situation and a one-off. There is a contingency fund of approximately €500 million for the recapitalisation of credit unions, €54 million of which I assume will go to Newbridge Credit Union. Where do other credit unions stand? Some reports suggest that one in four credit unions have issues. The Tánaiste said that 20 credit unions are reported to have regulatory reserves below the minimum requirement. Perhaps the Minister would elaborate on the situation. It is important that the message goes out that the Government supports the credit union movement. Most of the people engaged with the credit union system do not engage in other banking mechanisms. It is important these people have confidence in the system.

Michael Noonan (Limerick City, Fine Gael)
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The decision to transfer assets and liabilities, excluding the premises, of Newbridge Credit Union to Permanent TSB was necessary to safeguard members' savings as the only alternative option available to the Central Bank was liquidation, which would have seen unprotected savings of in excess of €1 million lost. This would have included the savings of charities, schools and individuals. For this reason, on Sunday, 10 November the Central Bank applied to the High Court under the Central Bank and Credit Institutions (Resolution) Act 2011 and received approval for the transfer of the assets and liabilities of Newbridge Credit Union, excluding the premises, to Permanent TSB. The Central Bank has published extensive information on its website setting out the details of the transfer, including the relevant background material and financial details. It is also examining a range of other material which remains subject to High Court confidentiality restrictions to ascertain whether any of this material can be published in due course.

As Minister for Finance, I agreed to the payment to Permanent TSB of a financial incentive of up to €53.9 million to support the transfer. This was on foot of a request from the Governor of the Central Bank. The incentive includes €23 million in cash upfront; €4.25 million for restructuring and integration costs; €2 million for other transferring liabilities; a maximum additional €24.7 million to cover additional costs resulting from all loans being written off with nothing recovered and a risk share on the transferring loans, whereby the State will absorb 50% of the losses where loans perform below their transfer value and 50% of the gains where they perform above the transfer value. If these loans were written off entirely with no recovery, this would result in an

additional €24.7 million total cost. The financial incentive provided in the Newbridge case is fully recoupable from the financial services sector over time in the form of a levy.

The Central Bank undertook a process which involved the examination of possible credit union combinations in line with the resolution options available. This examination resulted in an approach being made to a number of credit unions. Ultimately, however, no credit union considered that it was in its best interests to complete such a combination, even in the context of extensive taxpayer support. This partly reflected the exceptional nature of financial difficulties at Newbridge Credit Union and the relative scale of the credit union within the sector. The Central Bank also considered proposed solutions put forward by various interested parties but none proved feasible in addressing the problems or protecting members' savings. It was in the context of a possible liquidation that, with the support of the Central Bank, a request was made to Permanent TSB to undertake this transaction. I would like to express my thanks to Permanent TSB for its participation in this process, which has brought stability and certainty to the situation and specifically to the members and staff of Newbridge Credit Union and has provided an alternative to liquidation. The transfer of Newbridge Credit Union to Permanent TSB means that Newbridge Credit Union members can be assured that they can continue to operate their loan and deposit accounts as normal.

The bad practices in Newbridge Credit Union over many years can be illustrated in the following key lending statistics: an individual loan of €3.2 million, which was in excess of the Credit Union Act restriction of a maximum of 1.5% of the total assets; 52% of the loans exceeded five years duration as opposed to the maximum set out in the Credit Union Act of 20%; the average loan in Newbridge Credit Union was €17,281 as compared with the average credit union loan of €7,764; and there were 26 loans of an average value of €550,000, which were seriously distressed. These figures illustrate that Newbridge Credit Union was operating in a very different way from a normal credit union. The structure of some loans was more akin to development loans with bullet repayments as opposed to regular repayments.

The Central Bank has informed me that, based on data submitted by credit unions as at 30 September 2013, some 20 credit unions have reported regulatory reserves below the minimum requirement of 10% of assets. This gives rise to a capital shortfall of in the region of €11 million. The Central Bank is continuing to work through a portfolio of approximately 100 credit unions on a case by case basis. The programme of work to engage with such credit unions is informed by the following: levels of arrears, inadequate bad debt provisions, high fixed asset to total asset ratio and other supervisory concerns, including weak lending practices. The outcome of these engagements can include some or all of the following: governance changes, risk mitigation programmes, lending and other business restrictions and requirements for credit unions to seek capital support.

The funding required for Newbridge Credit Union is being provided by the resolution fund and is fully recoupable from the financial sector via a levy over time. The Government has made available €500 million to support the stability of the credit union movement. This amount is divided between two funds of €250 million each, one for resolution, which is being used in the Newbridge case, and an other which is for voluntary restructuring under the Credit Union Restructuring Board.

I emphasise that the Government recognises the important role of credit unions as a volunteer co-operative movement and the distinction between them and other types of financial institutions. The Government's priorities remain the protection of members^' savings, the financial stability of credit unions and the overall sector. I would like to remind credit union members that protection available to credit union members under the deposit guarantee scheme currently safeguards up to €100,000 per depositor per financial institution.

The Government is determined to support a strengthened and growing credit union movement and would encourage the movement to work with its stronger credit unions so they can provide a viable option for assisting weaker credit unions. In particular, the Government would like to highlight its support for the future return of a credit union to Newbridge.

Patrick Nulty (Dublin West, Independent)
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I thank the Minister for his reply. I would welcome if he could elaborate on his statement that the Central Bank is working with approximately 100 credit unions in regard to their financial balance sheets and the degree to which they are operating within best practice. What is the level of engagement by the Central Bank with the credit unions concerned?

I welcome that the Minister has reiterated the commitment in terms of the guarantee of deposits. Perhaps he will confirm that the Permanent TSB takeover situation is unique and will not set a precedent. Can the Minister and Government guarantee that financial institutions will not take over or seize credit unions from members? The Minister will be aware that the credit union movement is different from the banks. It is not driven by the massive profit motive by which banks are driven. We all know that the banking sector has no interest in the future of this country. The banks do not care about this island. As I said, credit unions are the bulwark against the loan sharks and crooks that seek to exploit inequalities in our communities.

Can the Minister assure us today that the Permanent TSB takeover will be the only one of its kind or are there more in the pipeline?

Billy Timmins (Wicklow, Independent)
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I thank the Minister for his reply. A message seems to have gone out from the Government that it is supportive of a replacement credit union in Newbridge. That demand may be coming from the public - I do not know - but it is important that we know where the Government stands on this, so that false hope is not built up. Does the Minister know what will be done with the building?

Do we have an idea of the total value of all loans of the more than 390 credit unions across the country? What is the total value of their deposits? I notice that Kieron Brennan, the CEO of the Irish League of Credit Unions, stated that credit unions have access to literally billions of euro that could be lent out. It may not be feasible or it may require a change in legislation, but has the Government looked at the concept of lending to or borrowing from the credit unions? It might be a two-way house whereby the credit union could help the Government if it is looking for funding in the future. It may not be possible, but it has been put out there. Perhaps the Credit Union Restructuring Board could look at it and report on it.

One of the things that fuelled the problems in Newbridge was the property rush. In the loose alliance in which I am involved with Deputy Mathews and others, we have come forward with a theory called the "fair value of a property". I ask the Minister to look at that theory. In additional to the historical breaks on lending, there should be a fair value assessed, based on the average cost of the house via the average income. There should be an established multiplier based on historical information, which should be used as a general rule of thumb in future. It would certainly prevent the situation whereby financial institutions were taking a risk on property prices, for which the taxpayers ultimately had to foot the bill.

Michael Noonan (Limerick City, Fine Gael)
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I want to assure the House that the case of Newbridge was an outlier, both in terms of its level of impairment and its actual size. It is an enormous credit union compared to the practice in many towns and villages. I also wish to restate the Government's commitment to the credit union movement, as I have done on several occasions on behalf of the Government over the last two and a half years. We have taken a number of actions to secure the credit union movement in Ireland, including establishing a credit union commission, and we have taken on board the key recommendations of that commission, including the establishment of the Credit Union Restructuring Board.

The Central Bank has the regulatory function over the credit union movement, and it has been working in partnership with several credit unions around the country to ensure that they are restored to strength, if they have any level of impairment, in accordance with the new regulatory regime. One of the key regulations applied by the Central Bank is that the level of reserves should be at 10% of the balance sheet of the credit union movement. There are 20 credit unions below that level. If they were not able to trade themselves into having adequate reserves and the Central Bank had to apply resolution fund money to bring them up to the 10% reserve figure, the cost of that is €11 million in total across the 20 credit unions. In comparison to what is going into Newbridge, the overall potential liability is quite small.

Beyond that again, there is another tranche of credit unions that are in constant friendly contact with the Central Bank, which is helping them to have better lending practices, better supervision mechanisms and to apply the rules more rigidly. However, the 20 credit unions are those in the high risk category, and that is the situation there. Once again I would like to reaffirm the Government's commitment to the credit union movement. We are fully aware of the part that credit unions play in many communities in Ireland, and how they are integrated with the community.

The Newbridge Credit Union building was not included in the transfer of assets to PTSB, which did not want it. A value of €15 million has been ascribed to the building on the credit union's balance sheet. My advice is that the market value of it is somewhere between €3 million and €4 million. No decision has been made yet about the building, but the likelihood is that the OPW will assist. While PTSB will maintain facilities in the existing building over the transitional period, PTSB does not intend to operate a branch of PTSB out of that building. The OPW will provide assistance and we understand that a particular State agency would have an interest in that building. There is no intention of leaving it empty. If it is occupied along the line I think may happen, the agency may provide very welcome community services out of that building.