Noel Coonan (Tipperary North, Fine Gael)
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Question 155: To ask the Minister for Finance his views on whether section 35 of the Credit Union Act 1997 restricts the amount of money credit unions can lend to members over five or ten years; his views on whether this could cripple many credit unions nationwide and gives powers to the Financial Regulator to impose lending restrictions; if he will defer the amendments to section 35; and if he will make a statement on the matter. [26788/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Section 35 of the Credit Union Act 1997 imposes limits on credit unions in relation to longer-term lending. The restrictions contained in Section 35 are an important asset and liability instrument which has protected the financial stability of the credit union movement over many years. The funding of credit unions is predominantly provided on a short-term basis in the form of on-demand savings and consequently the Section 35 limits are necessary for the protection of the financial stability of credit unions.

The effect of the amendment contained in the Central Bank Reform Bill 2010 is to increase from 20% to 30% the limit on the proportion of a credit union loan book comprising loans over 5 years. Credit unions have been seeking the amendment for some time. It represents, however, a significant weakening of this asset and liability tool in order to enable an increased capacity for credit unions to reschedule loans. For this reason, it is accompanied by some balancing measures which will allow for a framework for implementation by the Registrar of Credit Unions including requirements in relation to liquidity, provisioning and accounting transparency.

As I indicated during the Committee Stage debate on the Bill in Dáil Éireann last week, these requirements are to be implemented under the framework in a prudent, balanced and proportionate manner, in line with reasonable conditions and generous transitional arrangements. Following meetings with a number of Deputies and with the credit union representative bodies, I have reflected on concerns expressed to me and I will be bringing forward amendments to the relevant provisions in the Bill at Report Stage. The changes represent a reasonable compromise but they are as far as I can go.

There is a balance to be struck between meeting members' needs to reschedule loans and ensuring the stability of the credit union sector overall. We must act now in a prudent and preventative manner. It is in the interests of every credit union in the country that the stability of the sector is safeguarded. The proposals being brought forward in connection with the Bill will achieve this fundamental aim and I would not be happy to defer the amendments to Section 35.