Robert Dowds (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

I regret that the Minister for Finance is not here but I hope the Minister of State, Deputy Harris-----

Willie Penrose (Longford-Westmeath, Labour)
Link to this: Individually | In context | Oireachtas source

He is very agreeable.

Robert Dowds (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

-----will give a full account to the Minister because there is much frustration in the credit union movement about this issue. As the Minister for Finance knows, credit unions are a major pillar of towns and cities in this country, providing a very important service for people through saving and lending facilities.

There is very considerable frustration about the restrictions through regulations being applied to credit unions, and I will focus on two of those. The new regulations will restrict members from saving more than €100,000 in total, compared with the current system, which allows members save up to €100,000 in shares and a further €100,000 in deposits. I appreciate that this is probably not an important matter for newer members but it is important for older members. They do not want to have to change their banking institution later in life but such people are being told that they must remove savings over €100,000 and move the money to another financial institution. It is a further insult that these people will have to deal with banking institutions that really got this country into trouble. Most of the credit unions exhibited exemplary behaviour and where they had to be bailed out, the figure was approximately €20 million.

As another example, under regulation 16 there are very considerable issues relating to the definition of a house loan. As the Minister of State, Deputy Harris, and undoubtedly the Minister, Deputy Noonan, realise, credit unions very much know their people.

They know what is safe to lend people and what is not safe to lend people and they should not be unnecessarily restricted in their lending. As a measure of what credit unions can be and how they are viewed elsewhere, I understand that some time ago a delegation from Latvia came. They were really impressed with the whole idea of credit unions and, as far as I know, they are trying to roll out something like that in Latvia. I am asking that the Minister would go into discussion with credit unions and, whatever else he does, avoid signing this most recent regulation, Consultation Paper 88, CP88. Can we have proper discussion between both sides on this?

Willie Penrose (Longford-Westmeath, Labour)
Link to this: Individually | In context | Oireachtas source

Across the Republic of Ireland there are 2.89 million members in 352 credit unions. Credit union members have in excess of €11 billion in savings, €3.5 billion in loans and more than €13 billion in total assets. Credit unions are not only a major economic force, they are a social movement throughout this country. The Labour Party has always been clear about its role: economic recovery is for a social purpose. Credit unions have an ambitious developmental agenda. They want to better serve their members and their communities. They are hamstrung and frustrated by what they cannot do, but they have a positive developmental agenda to do much more.

Like Deputies on all sides of the House, I have been lobbied by the Irish League of Credit Unions. Areas I have identified where credit unions could do much more include micro-credit, lending small amounts to the most vulnerable, who are pushed into the maw of moneylenders; making significant amounts of money available to finance social housing from the €8 billion currently held in investments; and lending to small and micro-businesses. These are not just platitudes from the credit unions. They delivered a cogent, well thought-out policy platform in their Six Strategic Steps policy document, which has been backed up with a detailed policy document on how credit union resources could effectively support delivery of social housing. The Ministers, Deputies Alan Kelly and Paudie Coffey, have that proposal on their desk and it has now also been sent to the Minister for Finance. This is not rhetoric. They have fleshed out in great detail this worthwhile proposal. The Irish League of Credit Unions proposes that its credit unions would form a special purpose vehicle, which would either invest in a State-owned financial vehicle that would lend to approved housing bodies to fund the development of social housing or would lend directly to approved housing bodies to fund the development of social housing. Credit unions have also delivered pilot schemes for micro-credit programmes led by the Tánaiste and Minister of State, Deputy Humphreys, in the Department of Social Protection. I hope this will be available throughout the countryside soon.

Credit unions are stepping up to the plate with ideas and enthusiasm. Where they can find willing partners, they are participating enthusiastically. If credit unions are determined and ambitious, they are also hamstrung by inappropriate, one-size-fits-all regulation. CP88 is an acronym that will not mean much to most people, but it is the latest in a long line of inappropriate, one-size-fits-all regulation that is preventing credit unions from delivering what is being demanded. Loan-to-asset levels have fallen movement-wide from 44% in 2010 to 27% in 2015. During this period, the movement has maintained its members' savings. As a result, significant levels of members' funds are held in investment-related products earning a low or negative yield, such as Government bonds, or put to unproductive purposes. This also exposes significant levels of members' funds to market risk, as income levels are under increased margin pressure due to a prolonged low interest rate environment. Currently there is over €8 billion in credit union accounts. The extraordinary consequence of the regulation of credit unions is they are, first, being severely hampered in their capacity to lend money for viable prudent purposes. Second, the Central Bank and the Registry of Credit Unions are regulating credit unions so as to ensure that local branches close, leaving communities in the lurch. Credit unions stay open to serve the communities that founded them. The same credit unions are at that stage being forced by the same regulator to put the credit union members' savings, which they are prevented from lending, into the banks-----

Michael Kitt (Galway East, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I thank the Deputy.

Willie Penrose (Longford-Westmeath, Labour)
Link to this: Individually | In context | Oireachtas source

-----that have closed up and that have left the same community to fend for itself. The very banks that put us down the tubes are now getting money from the credit unions. One could not make it up. The consequence of the current regulations around credit union investment is that the vast majority of credit union funds are currently held in bank deposits, earning even lower returns.

Minor changes to these regulations would free up credit unions to invest in more socially productive initiatives, such as social housing, but also have a positive return on investments. The Minister for Finance has repeatedly said that his role "is to ensure the legal framework for credit unions is appropriate for the effective operation and supervision of credit unions". The bottom line is that the regulatory framework for credit unions is not effective and is effectively being operated for the benefit of banks. Critically, the International Credit Union Regulators' Network, ICURN, credit union peer review report on the Central Bank's performance of its regulatory functions in relation to credit unions, published on 9 September, stated, "We also suggest that consideration be given by the relevant authority to directing a closely defined, limited review to evaluate the implementation of the original recommendation of the [Commission on Credit Unions] and to propose any revisions or measures thought necessary in the light of that experience". Surely that is the Minister's way out.

Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank Deputies Dowd and Penrose for raising this important issue. I know they both feel passionately about this matter and raise it regularly here on the floor of Dáil Éireann. I thank them for the opportunity to respond to a number of important issues they have raised on behalf of my colleague, the Minister for Finance, Deputy Noonan.

Credit unions in Ireland have a-----

Robert Dowds (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

Could we have a copy of the Minister of State's script?

Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am sure that will be made available in a moment. Credit unions in Ireland have a legislative framework designed specifically for credit unions in the Credit Union Act 1997, and the Credit Union and Co-operation with Overseas Regulators Act 2012 which updates the 1997 Act. The Credit Union and Co-operation with Overseas Regulators Act 2012 was signed into law by the President of Ireland on 19 December 2012. Following on from that there was an implementation plan put in place which was agreed by all stakeholders. It was agreed that such a plan was necessary for the coherent and timely commencement of all sections of the Act.

Credit unions are regulated and supervised by the Registrar of Credit Unions at the Central Bank, who is the independent regulator for credit unions. Within her independent regulatory discretion, the registrar acts to support the prudential soundness of individual credit unions, to maintain sector stability and to protect the savings of credit union members. The Minister for Finance's role is to ensure that the legal framework for credit unions is appropriate for the effective operation and supervision of credit unions.

The outstanding sections of the 2012 Act relate to savings, borrowing, lending, investments, reserves and liquidity. The Minister has been informed by the Central Bank that the draft regulations set out in CP88, to which both Deputies referred, will be introduced on commencement of the remaining sections of the 2012 Act at end December 2015. The regulations will replace and, where appropriate, amend a number of requirements that currently exist in legislation and guidance. Additional requirements have also been included in the regulations, where necessary, to strengthen the regulatory framework.

The Minister and I are aware that a number of issues have been raised regarding the proposed regulations. The main issues are the introduction of a savings cap, the development of the credit union business model and the imposition of lending restrictions. Following consultation on the regulations, the Central Bank has introduced a number of changes.

The introduction of a maximum individual member's savings limit of €100,000 is to ensure the protection of members' savings and TO continue to ensure that credit unions' funding is sufficiently diversified and is not dependent on a small number of members. Following consultation with the credit union sector and representative bodies, the Central Bank amended the transitional arrangement for the savings regulations to provide for credit unions that have individual member savings in excess of €100,000 at the commencement of the regulations to apply to the Central Bank to retain these savings where they can demonstrate that it is appropriate and prudent for them to do so. That is quite a significant change. Credit unions can now apply to retain those savings. The Minister has been informed by the Registrar of Credit Unions that information regarding this matter and details of the application process will be available to credit unions before commencement of the regulations at the end of 2015. The Central Bank is currently refining its application criteria for retention of savings in excess of €100,000, to include a minimum asset size of €10 million; a minimum liquidity ratio of 25%; and the level of additional reserves in excess of the minimum 10% level, taking account of the scale, complexity and risk of the credit union. Consideration will also be given to other supervisory information, including whether a credit union has a regulatory direction or business restriction.

The Registry of Credit Unions intends to engage with the representative bodies - it is very important that they do engage - and to invite comments from them prior to finalisation of this application process. When the application process is finalised, the registry will provide an application form and explanatory notes in order to assist credit unions in making such an application. It is anticipated that application forms will be available during December 2015. The Central Bank envisages that applications will be accepted in the first quarter of 2016 and that applicant credit unions will be informed by the end of the second quarter of 2016 on the outcome of the process, which is well within the 12 month transitional period. Where a credit union has demonstrated that it meets the criteria, it will be in a position to retain members' savings in excess of €100,000 held at the commencement of the regulations.

The Central Bank has also informed the Minister that it is committed to undertaking a review of the continued appropriateness of the savings limit, once the impact of the restructuring process can be assessed.

It is expected that this review will commence within three years of the introduction of the regulations. The Central Bank has agreed to provide regular updates to the Department of Finance on developments in this matter.

Michael Kitt (Galway East, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I ask the Minister of State to read the remainder of the reply in his next speaking slot.

Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I will indeed.

Robert Dowds (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

I thank the Minister of State for his response.

I still come back to this point. I appreciate and am glad that a degree of flexibility exists but why have them hamstrung unnecessarily with bureaucracy? One should remember that credit unions are organisations which, while having professional staff, also have considerable voluntary involvement and they should not be hamstrung any more than necessary. I am asking that consultation paper 88, as it stands, not be signed off, even though I accept that there is some flexibility. I would prefer that there be more dialogue with the credit union movement. The latter did not cause the banking crisis and when it had to bailed out, the cost was approximately €25 million. That is peanuts compared to the amount that had to be spent in bailing out the banks.

From what I am told, when Mr. Matthew Elderfield came to Ireland and took up the position of regulator, he did not even know what a credit union was. He knew what other banks were all right but he did not know what a credit union was. Credit unions have a long tradition of acting responsibly and, for that reason, we should try to work in unison with them and to their advantage to the greatest extent possible.

Willie Penrose (Longford-Westmeath, Labour)
Link to this: Individually | In context | Oireachtas source

I thank the Minister of State for the reply. It is not the type of reply he would normally provide, given that it is couched in legal and bureaucratic language.

There is evidence in every credit union throughout the country and a clear recommendation is contained in the International Credit Union Regulators Network, ICURN, report commissioned by the Central Bank to the effect that it is time to step back, review and ensure that the regulatory architecture for credit unions is appropriate for the future. As the Minister of State indicated, the Minister for Finance, Deputy Noonan, has the power to effect regulation - this is set out in consultation paper 88 - or to pause and ensure, as recommended, that there is a timely review. Let the Minister return to the Central Bank. The regulations under the Credit Union and Co-operation with Overseas Regulators Act 2012 must first be commenced by the Minister for Finance. In view of the grave concern among credit unions, I request that the Minister refrain from signing the relevant commencement order and I ask that a thorough and timely review be carried out. The Minister should not allow the credit union movement, the bedrock of stability in our communities, to be sacrificed as a result of the irresponsibility of other financial institutions.

In effect, the banks, as a conglomerate, cost us in the region of €64 billion. I clearly recall that when I was in government an amendment from the regulatory services was brought forward advising the Minister for Finance that capital provision should be made for a number of credit unions that would effectively be in trouble and that the sum required would be in the region of €1 billion. Let us examine the record. Only three credit unions needed some cash - the final total was €25 million. In other words, the amount required was €975 million less than was projected by the great regulators. The irony is that the credit unions have in excess of €100 million as a fallback fund. They could have paid out the €25 million but somebody wanted to make a big deal out of the situation. The Government paid the €25 million but there was no need for it to do so because there was €100 million there to cover the cost.

Michael Kitt (Galway East, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I thank the Deputy.

Willie Penrose (Longford-Westmeath, Labour)
Link to this: Individually | In context | Oireachtas source

There is some difference between the position of the credit unions and the banks. This regulation will now compel credit unions to offload their additional funds into the very same banks that sunk the country. Is that not ironic? As one comedian would say, "Sure, you couldn't make it up." I ask the Minister of State to see the sense of the logic in our arguments and subject regulation CP 88 to a short, sharp review, as advised in the report commissioned by the Central Bank.

Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source

First, like Deputies Dowds and Penrose, I appreciate the important role that the credit union movement plays. I am a member of a credit union in my constituency and, like many Members of this House, I know the substantial difference the movement makes to the lives of so many citizens throughout the country. The Minister for Finance, his officials and I have had good engagement with the various representative bodies of the credit unions over a period. I have found that engagement to be fruitful and it will continue.

I must make clear, however, that Members of this House passed the Credit Union and Co-operation with Overseas Regulators Bill 2012. We voted for it, we passed it and it is the law. There are sections of that Act that are due to commence at the end of this year. The independent regulator has made it clear that there are new criteria coming into place in relation to the €100,000. Many Members, including myself, had concerns that depositors would be told that they had to take their savings out of the credit union movement and put them into banks. I am very pleased, as is my colleague, the Minister for Finance, that the Central Bank has now advised him that this is no longer the position. The position now is that once one can meet certain criteria to show various adherence in relation to asset size, liquidity ratio and additional reserves in excess of the minimum, those savings can remain in the credit union. That is an important step forward in relation to the credit union movement.

I am also pleased that the Registry of Credit Unions has stated it will engage with the representative bodies of the credit union movement - I would again urge it to do so - and to invite their comments prior to the finalisation of this application process. The Central Bank has further informed the Minister that it is open to working with the credit union sector to ensure that prudent and appropriate business development can be facilitated within the regulatory framework. The credit union movement wants to play a bigger role in our economy and in our communities. I believe it can and so does the Government. I look forward to that engagement taking place with the Central Bank.

The credit union movement will continue to play an important role in the economy and this Government is committed to working with it. I will continue to engage with the Deputies on the matter.

Michael Kitt (Galway East, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Deputy Ó Caoláin is not here yet, so I will move on to the fourth matter, which is in the name of Deputy McEntee.