Brian O'Shea (Waterford, Labour)
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Question 25: To ask the Minister for Finance his views on rising a loan and investment losses in the credit union sector and that some credit unions could be on the verge of insolvency or may not have sufficient liquid assets to meet their financial commitments to members; and if he will make a statement on the matter. [12310/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As Minister for Finance, my role is to ensure that the legal framework for credit unions is appropriate for the effective operation and supervision of credit unions. The Registrar of Credit Unions is responsible for administering the system of regulation and supervision of credit unions provided under the Credit Union Act 1997, with a view to the protection by each credit union of the funds of its members and the maintenance of the financial stability of credit unions generally.

As the Deputies will recognise, the current serious difficulties in the financial sector and the accompanying economic downturn is affecting all financial institutions, including credit unions. On account of the reduced availability of credit in the banking system credit unions are now experiencing an increase in demand from their members for loans. There has also been some increase in bad and doubtful debts and, as is the case across the whole of the financial sector, there have been losses on credit union investments. It is not surprising that this combination of trends has led to a situation where credit unions generally have reported a decline in profits for 2008.

I am aware of recent media reports regarding difficulties with which the Registrar of Credit Unions is dealing in a small minority of credit unions. Following the Government's decision last September on the extension and increase in protection available under the Deposit Guarantee Scheme, all credit union savers can be reassured that their deposits and shares to the total maximum value of €100,000 are safe and secure. The credit union movement as a whole is in a relatively strong financial position with solid liquidity and reserves. The Registrar of Credit Unions has highlighted that, of the 419 credit unions registered in the Republic, only a handful are affected by these difficulties. The Registrar is continuing to work closely with the boards of those credit unions that are encountering problems. Very close oversight, monitoring and controls over these credit unions by the Registrar of Credit Unions are intended to assist them in addressing current issues and to ensure their long-term stability and sustainability.

In addition, it should be noted that the Irish League of Credit Unions maintains a savings protection fund in excess of €105 million which is available to help stabilise the position of any credit union that encounters problems. The Department of Finance also is actively considering proposals in consultation with the representative bodies for credit unions for a central liquidity fund using the surplus liquidity in the credit union movement as a whole to support credit unions that may experience any temporary difficulties.

The Registrar of Credit Unions is of the view, and I am in full agreement with him on this point, that there is no reason credit unions cannot survive and prosper in the present financial environment. He has advised credit unions that the focus of day-to-day management within credit unions must be to ensure that adequate liquid resources are always available for operational purposes and that surplus funds should be held in liquid form. Credit committees in credit unions should be given clear limits on the total funds available for the granting of loans, bearing in mind the availability of liquid resources. Easy access to liquid funds must be a priority. Lending criteria must be based on carefully researched factors and on conservative estimates of the ability and commitment of the potential borrower to repay a loan.

The Registrar of Credit Unions is responsible for the regulation and supervision of credit unions using the powers available under the Credit Union Act 1997. This rules-based legislation provides extensive powers of direction to the Registrar to ensure the financial soundness and safety of credit unions and to protect credit union savers. The Registrar can also issue regulatory direction and prohibition orders to a credit union in relation to a broad range of issues including, investments, raising of funds, loans, assets and liabilities ratios and the composition of their assets and liabilities. He has extensive powers of inspection and investigation of credit unions as well as broad supervisory powers, for example, to appoint, suspend or remove a person as a director of a credit union or to remove auditors. A number of offences are also provided for in the Act.

The extensive powers currently available to the Registrar under the Act are important in ensuring that the regulatory system is robust and effective and in particular safeguards members' savings. The rules-based approach to regulation embodied in the Credit Union Act has clearly served the credit union movement well, as is demonstrated by small minority of credit unions which the Registrar is currently monitoring closely in the current environment.