Michael Noonan (Limerick City, Fine Gael)

Senator Sheahan asked about the credit union movement. The restructuring of the banks has been mentioned. The last element of the financial retail industry that must be restructured is the credit unions. It is an open secret that while the credit unions have done wonderful work down the years and one could not be complimentary enough about the volunteers who give of their time to provide credit lines to their neighbours when the latter could not get them by any traditional way through the banking system, a difficulty has arisen in some of them. If the movement was one large bank with individual branches, it would have no problems because the good ones would balance the bad ones, but individual credit unions have problems that are coming down the road quickly.

From a policy point of view, there have been a number of occurrences. In June, a commission was set up to examine the credit unions. On it sit representatives of the Irish League of Credit Unions, ILCU, the Credit Union Advisory Committee, CUAC, and the other large credit union body. The commission has made an interim report, which will be put before the Government on Tuesday and, hopefully, will be published and fully debated. It sets out the commission's first cut at what it perceives as the set of problems and what needs to be done in a regulatory way. Subsequently, the commitment is to have credit union legislation before Christmas. The commission will continue its work until approximately April, at which point it will make a final report on the overall credit union policy parameters.

Matters have been overtaken by events. The Central Bank has requested that we use the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011, Report Stage of which will be debated on Wednesday, to give it additional powers to deal with credit unions that are on the brink and that it foresees entering into difficulty before the main legislation can be passed ahead of Christmas. The Central Bank must span that gap. I moved amendments on Committee Stage last week to address this issue. They were broad stroke amendments. Now that we have had more time and consulted with the credit union movement, we will narrow the focus of the amendments on Report Stage and remove some of the elements to which the movement objects. On reflection, bits of the amendments are unnecessary to meet what we must in the coming weeks. We will be taking other measures in this regard.

The Minister is not the regulator of the credit unions. The Central Bank, the Financial Regulator and the Registrar of Credit Unions form the regulator. I cannot guarantee the Senator that the regulator of the credit unions will provide €1,000 for the family at Christmas that has always relied on that money to carry it through Christmas. Yesterday, I answered questions in the Lower House. The regulator has issued directions to more than 50% of credit unions instructing them to limit the amount they can advance to particular customers. Some of the seriously impaired credit unions have been limited to €1,000, but that is low. I will ask my officials to speak informally with the people who issued these directives to increase the amount to a more reasonable ceiling and to allow negotiations within those parameters.

It is not a one size fits all situation. Some credit unions have no problems and others are on the brink of falling down a hole, to put it in its bluntest terms. They must be treated differently. I will inquire into the matter of negotiating the terms of loans. I do not know whether it is down to advice based on best practice or the imposition by banks of a statutory regulation, but I will pass on the Senator's request. I am not the regulator. All I can do is ask people to deal with an issue I have encountered. I cannot direct in any way, as doing so would be interference with the credit unions.

I am pro-credit unions and I intend to sort them out. Some of them will need to be dealt with immediately, but we will not do it in one big bang. My advice is that this will cost between €500 million and €1 billion. The major element of sorting them out will be their recapitalisation. The amount is small in contrast with the banks, but it is still a big hunk of money. Since we recapitalised the banks for less than expected, we have a bit in hand for the credit unions and will not need to revert to the Exchequer.

The dialogue has been good. We all have contacts in the credit union movement. Often, one needs information to filter through to Dublin. Even though there are large credit unions in Dublin, one gets more information from the credit union in the small town or community that knows exactly what is happening.

The intention is to secure the future of the credit unions along the lines I have suggested. We will proceed with amendments on Report Stage to meet the needs of the many people who have called and spoken with me. When we publish the interim report, it will give Senators a great deal of information that they can solidly debate. We will legislate before Christmas. In parallel, the regulator and the Central Bank will take action. We will recapitalise the credit unions over a period and put them on a firm footing again. This will probably involve consolidation, in that small credit unions may need to merge and we may need a hub-and-spoke system. These decisions have not been taken, but they are around. A large credit union would be the regional leader with IT and risk management centralised to it. However, smaller credit unions would draw from that central resource but would still operate independently in their own communities. A number of ideas have been put forward, and we will wait for the commission's report to see how we will do it. It is a very important topic and I am glad the Senator asked the question.

Senator MacSharry asked three questions, the first being on whether we can get back in the game retrospectively and ensure we did not settle hard while others settle soft if a better deal is done in Europe on the recapitalisation of the banks. We have no guarantee on this and we have had no discussions on it. However, the Senator will notice I have been positioning a renegotiation of the promissory note on Anglo Irish Bank and I think this will be the door through which we might be able to go because it amounts to €30 billion. If we had a different arrangement on this we could lessen the debt burden.

I do not know whether Europe would retrospectively take shares in AIB. This and the previous Government recapitalised AIB to the tune of approximately €20 billion. It has been very expensive and I suppose its market value is much less than €1 billion at present. I have been trying to anticipate the possibility of what Senator MacSharry has stated. I am trying to develop alternatives that we might arrive at the same solution, but there is no sign yet that there will be a softer deal anywhere else with the exception of Greece whose banking system is in much difficulty.

This morning's Financial Times mentioned a twin track approach whereby banks in smaller countries would be given the facility from the EFSF which we received to recapitalise banks, while recapitalisation funds for banks in larger countries would be a matter for their national governments.