I love one of our posters which said Ballyphehane were "...one of the CUs to be least in trouble...".
This of course is true but hardly fair. Again ask people to list all the failed credit unions and they struggle after 4 or 5.
St Michael's is a good example of having fallen foul of the 10% Regulatory Reserve Ratio.
They are well below 7.5%. Again if we had access to Accounts for research, it would reveal a lot.
The problem with the ratio is this:
1. Only retained profits can increase the reserves essentially [This is a significant serious flaw]
2. Even though Shares are 'capital' the CBI treats them as 'deposits' so they don't count for risk capital [Maybe this makes sense]
3. Its against all assets with no risk weightings [This makes the ratio a nonsense because Loans are assets and US Government Bonds are assets]
4. When a CU goes below 7.5% alarm bells ring signalling remedial action. [This is on very dodgy foundations]
[So even if I say 3% against Total Assets is the Banks equivalent under Basel III then why are Credit Unions being hammered when their ratio
is above 3% but below 10%?]
So Michael's would have been 'advised' - well lets say merge or the consequences are ..
So if St Michael's are challenged to fill the gap in their ratio - a seriously flawed ratio - how do they fill it if the profitability is temporarily
challenged?
You will note that I say temporarily - I do not buy for a minute the bogus 'viability' argument. Credit Unions have temporarily lost
their way on lending - but just look at 1295% APR in another posting and Credit Unions at 12.9% APR Maximum.
Basically if Michael's were properly advised the CBI would be challenged on the Reserve Ratio and there are so many defects that
whoever came up with it had one thing in mind. Put a brake on Credit Union growth. Use it as an enforcement mechanism.
It is the most crude, illogical, highest in the world 'ratio' based on prejudice by the designer and accepted because nobody knows how
to bring the CBI to order on certain excesses. This is one.