Joan Burton (Dublin West, Labour)
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Question 190: To ask the Minister for Finance the level of progress that has been made with respect to the introduction of a central liquidity mechanism, or similar mechanism, for the credit union sector; and if he will make a statement on the matter. [43200/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Joint Review Group on the Establishment of a Centralised Liquidity Mechanism for Credit Unions, representative of this Department, the Registrar of Credit Unions, the Credit Union Advisory Committee, the Irish League of Credit Unions and the Credit Union Development Association, met on a number of occasions since March 2009 to consider how we might establish a structured framework for meeting liquidity needs of credit unions as part of the process of protecting their financial stability. In July 2009, the Group agreed a report, which recommended that a centralised liquidity mechanism (CLM) is put in place for credit unions as soon as possible. Such a mechanism would compliment the introduction of the Deposit Guarantee Scheme for credit unions and further bolster public confidence.

The function of the CLM would be to receive deposits from credit unions for the purpose of providing liquidity to other credit unions in need of temporary liquidity support. Such support should take the form of loans and be subject to formal loan agreements between the CLM and the credit union being supported. The CLM would require legislative provisions addressing Corporate Governance, Functions and Powers, Liquidity Operations, Regulatory Oversight and Funding and Investment Policy. Detailed rules would be required in relation to areas such as its key function, the creation of the fund, terms and conditions of the liquidity assistance provided by the CLM, collateral requirements, and mechanisms for drawdown and underwriting. On account of the risk potentially arising from the CLM's activities and the need to safeguard the movement and the regulatory system, it is essential that the CLM governance, operational and regulatory arrangements are clearly set out in legislation.

The Registrar of Credit Union has prepared draft heads of Bill to amend the Credit Union Act 1997 to establish a Central Liquidity Credit Union membership of which would be limited to Credit Unions. The objects of the Central Liquidity Credit Union would be the receipt of funds from its members by way of subscription for shares, the investment of the funds of its members in a safe and secure manner, the making of loans to solvent members in need of liquidity support and borrowing of funds from other sources. This first draft was circulated to the credit union representative bodies for observations. We are now considering their responses and will reconvene the Joint Review Group at an early date.