# Warning that some Credit Unions won't be paying dividends



## Brendan Burgess

The Irish League of Credit Unions has said a number of its members will not be able to pay a dividend for the 2009 financial year because of the big fall in the value of investments.

full story


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## Slim

This is true but must be taken in context. The CU movement has about €12bn in assets/savings. About half of this, €6bn, is lent out to members and the remaining €6bn has to be invested. This is invested in a combination of bonds, shares, deposits and gilts etc. A small portion, about €170m, was invested in the now notorious "perpetual" bonds. These were sold to Credit Unions who, mostly, did not realise that the issuing bank could postpone the repayment date indefinitely, hence "perpetual". As the financial markets have sunk, bank bonds, and these in particular, have tanked in value, although they continue to pay decent coupon. So, at year end the CU's auditors are obliged to value these bonds at lower of sum invested or market value on the balance sheet. If the value has fallen from last year end by, say, €500k, then the CU must find that €500k from its operating surplus - a huge hit in any one year. Realistically, most CUs have practically written these off and the surplus will recover next year and subsequently, allowing CUs to pay decent dividend again. If the bonds ever recover in value it will be a huge bonus.

Slim

PS:CUs will still have to deal with equity investments which have gone bad and the likely increase in bad debts.


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## kaplan

Slim
You may need to revise your analysis for last year an include ISTC bonds and losses in the Central Treasury Trust. Losses reported on in the media totalled over €220m. Include FRN's and a host of retail investments including tracker bonds, unit linked, with profits; all of which are currently under water. Estimates of losses range 2-10% of invested assets much of which occurred after last years end accounts (Sept 08) and had not yet reflected the post Lehmans collapse in asset values. 

More recent media commentary quoting official sources put the number of credit unions operating at a loss (unable to pay a dividend this year) at *120.* Since then the figure has grown and it now appears closer to 220. Total assets of €12bn is a nonsense figure as you can't add credit union balance sheets together. Problems will arise across a range from small to large unions who will inform their savers later this year they are unable to pay any dividend. 

I reckon that losses from investments and loan defaults will range 3-10% of total income earning assets in the next two years which means cu's will not only fail to a dividend this year but will struggle to do so next year as well. Some will take substantial hits to their reserves that may trigger regulatory intervention to head off their insolvency.

Concerned that some will try to dip into their reserves to pay out to savers, the RCU is to require a regulatory reserve of 10% to total assets. Things are not looking too good either on the liquidity front with many unable to access under water investments without triggering large losses. The regulator has moved to reign in lending and many have been told only to lend a certain percentage of net monthly positive cash flow (loan repayments and net deposit increase). If anyone is concerned the should ask their credit union if it will be in a position to pay a dividend this year.


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## dewdrop

In regard to paying a dividend this year will this relate to the year 2008. Do all credit unions have the same financial year end? What is the approx time lapse between year end and date of their AGM which i presume is the first indicator of their ability to pay a dividend. Finally is it possible get copies of the Audited accounts from a central source say Irish League of Credit unions or does one have to approach individual Unions. It is ironic that the strength of the movement in building of hugh sums of funds has led to some of their investment problems/losses


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## mac2

It sounds to me like the Financial Regulator is treating credit unions unfairly. The banks are losing billions and costing the taxpayer more billions and yet they're allowed to pay interest on their deposits. Who's paying for this?
Some credit unions have made losses on bonds they were sold by the same banks and yet they're not allowed to pay any return on savings to their members, even out of previous years surpluses. 
Credit unions aren't asking for any state bailouts, yet they are getting all sorts of restrictions imposed on them.
The other thing that bugs me is that the Financial Regulator seems to do his credit union regulation through the media in a very damaging way, yet there's not a peep from the Regulator when it comes to regulation of the banks. I wonder why.


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## dewdrop

I think the comments re dividend problems arising from fall in investments came direct from Irish League of Credit Unions. We would all be possib ly better off if the regulatory authorities had been more active in the past and their current monitoring of the credit unions contrasts sharply with the "light touch" adopted towards the banks. Perhaps in the long run the credit unions will be all the better for it.


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## oldtimer

Credit unions' financial year runs from 1st October to 30th September. Dividends this year will be based on savings from 1st October 2008 to 30th September 2009. The rate recommended will be in the annual report sent to each member at least a week before the AGM. Most credit unions hold their AGM at end November/early December. Most credit unions have a fair idea now whether they will pay a dividend or not and the better credit unions would know what that dividend might be. My credit union has written to me with the following ''our credit union will be in a position to pay a dividend of at least 1.75% this year.''


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## kaplan

@Oldtimer: It is good to read that your credit union is communicating with its members/customers but can it pay from trading surplus or will it be forced to try and use reserves? 

What of the rest particularly those who know they cannot pay a dividend this year – should they not also write to their members to let them know or are they hoping Government will prevail on the Regulator to allow them to raid their reserves (community capital) to pay a dividend ?

On a related issue I note the ILCU is now saying “ _as a not-for-profit organisation the inability of some credit unions to record a profit does not have the same significance for us as it would for banks. Credit unions typically return any surplus they make to their members in the form of a dividend and their inability to pay that dividend will be a disappointment *but considering that the average savings of our 2.2 million members is approximately €4,000 that dividend would typically have been small.” *_

Of course the “average” is a nonsense as many people have far more in savings and is being used to downplay the effect of not paying a dividend – even still for any credit union trade body to reason it is ok not to pay a dividend as savings balances are small is quite something new.

There is a big PR move to position “dividends” as a share of profits and not what the vast majority of savers consider it to be – interest. Some are saying that unlike banks credit union shareholders have not lost any money in their credit union shares!

Unlike mature credit union movements Irish leadership clings onto an outdated concept of “shareholders return for risk” rather than what dividends are now regarded as – equivalent to an interest rate on a deposit account. I have no doubt that the people who have entrusted their entire household savings to their credit union will not take to kindly to being told they will not be paid anything this year and probably nothing next year as well. They will hardly be impressed to be told this is ok as they only save a small amount and can always access loans – problem with the latter bit is many credit unions have no money to lend.


See here [broken link removed] for more on the credit union crisis


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## dewdrop

Thanks Olddtimer for your helpful reply. I do hope the credit movement generally can weather any storms as they are an excellent movement with much voluntary input


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## kaplan

@anyone1 Over €200m was documented as being irretrievably wiped off community capital last year with another €300m to go this year and this is just in investment losses- in banking terms this equates to losses of c€16bn which granted is lower than banks current estimated losses but a hell a lot more than “not ever losing a single penny” if you accept that a credit unions worth is owned by its owners/members. And yes credit unions do cost the taxpayer as their income is not taxed and they have yet to be bailed out by government. The bill for this is likely to be similar in relative scale to the banks. The one time ordinary people need their credit unions many are unable to respond and increase their lending – people need to know why if they are to make sense of what has to be done to ensure credit unions survive.


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## kaplan

@anyone1 Here is some of information in the public domain. Apart from the reported €200m in losses in 2008 a further €100m is known of this year. Last year credit unions reported in their accounts investment losses of between 2% and 10% of invested assets.And did so before the full blown financial asset collapse triggered by Lehmans which means losse incurred after last September have to be accounted for this September (the credit union financial year end).

115 credit unions were running at a loss for their first quarter this year. This figure grew to 220 by the end of the second quarter. None of the tens of thousands who save with these credit unions are aware of their trading losses and the fact that they will probably not make any surplus from which to pay for money borrowed (saved) from their customers (consumers) who are also their members (owners). Trading losses are not solely a factor of investment losses but also a dramatic collapse in operating income from lending activity. One cannot book unpaid interest as income!

20 credit unions didn’t pay any dividend last year and an unknown number dipped into their reserves. Over one in two were below liquidity safety levels in March. Credit unions have assets they can liquidate but cannot as they will incur huge losses – some investments would lose 30% in value if liquidated. They are only liquid if prepared to book losses. They are looking for a derogation on accounting rules that require them to mark to market investment values. Other assets include tracker bonds,unit linked funds, insurance funds all of which have no secondary market and are effectively locked in - where encashed they carry hefty penalities and accruing losses.

The ILCU has said that the regulatory reserve ratio regime proposed by the financial regulator would increase the numbers of troubled credit unions from 115 to 180 (their figures based on first quarter results).Admitted to, two months after the regulator first spoke of 115 loss making credit unions. It's a body that has claimed credit unions are safer than banks - yet Irish covered banks are guaranteed by the Government - credit unions are not. Savers are to be covered under the €100k deposit guarantee scheme once legislation is enacted legislating for the guarantee announced last September. 

Total impaired assets are exposed investments of at c€2bn+ and impaired loans at the end of last September of €715m. Impaired loans are rising not declining and loan demand is dropping. 

Credit unions are lending to one another to provide liquidity support funding in a non-transparent ad-hoc system without adequate regulatory oversight. Some are said to have engaged in cross border transactions to massage liquidity profile for regulatory returns. 

The usual spin and bluster is been spun by some credit unionists who continue to deny in the media what they are pursuing in private and that includes a government guarantee for investment losses and a liquidity solution. 

No one is scaremongering just telling it as it is – maybe a crisis will be averted if Government acts in time. Meanwhile you are right if people are worried they should ask their credit union if it will generate enough profit to pay a dividend this year. Finally you would not excuse the voluntary board of a hospital for poor patient care yet for some reason voluntarism is being used as cover for poor governance and management of financial assets representing the savings of ordinary people. The losses being experienced by credit unions were avoidable had they prudently managed their investments. Funding government by buying its bonds is something that credit unions should always have been doing instead of investing in risk products they did not understand.

The bottom line is credit unions should have lent more and invested less (wisely and prudently)- instead of morphing into dysfunctional investment managers, losing millions in the process and ending the boom years with a destabilised business model.


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## Slim

The ILCU have circulated this advice to CUs re the Irish Independent article of Tuesday last:
"A report appeared in today’s Irish Independent on credit unions suggesting that half of credit unions are likely to report losses at year end.  As you know information on the financial position of credit unions is reported to the Registrar on a quarterly basis and this information is available to the League.  The most up to date prudential returns do not support the view put forward in the Independent story.

If you are asked about the issues reported in today’s Irish Independent you should say that official returns do not support the story and we would offer the following three points as appropriate additional information:


1. The Irish League of Credit Unions in a press briefing in April did advise that a number of credit unions would find it difficult to pay a dividend because of the requirement under accounting rules to write down their investment assets to current market value.  That remains an issue which will impact the end of year results in September 2009.


2. However, as a not-for-profit organisation the inability of some credit unions to record a profit does not have the same significance for us as it would for banks.  Credit unions typically return any surplus they make to their members in the form of a dividend and their inability to pay that dividend will be a disappointment but considering that the average savings of our 2.2 million members is approximately €4,000 that dividend would typically have been small.


3. Quite apart from the expectation of a dividend members save with the credit union so that they can have access to loans.  In the current credit crunch and the tightening of loan availability from banks this service remains one of the main reasons why our members continue to save with us."


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## Catch22

*Credit Union covered under deposit guarantee scheme*



kaplan said:


> Irish covered banks are guaranteed by the Government - credit unions are not.


 
Unless my eyes are deceiving me, the Financial Regulator's own website clearly states that savings in credit unions are guaranteed under the Irish Deposit Protection scheme up to €100,000.

It strikes me that a lot of people are wise after the event. Credit unions weren't the only ones let down by the banks when they invested in bank bonds which, at the time, were regarded as being as safe as houses (there's another story). Many pension funds and investment specialists were also caught out. And I think I'm right in saying that bank bonds were authorised as investments until 2007 by the Financial Regulator.

If I'm reading the various stories right, most credit unions will have a surplus this year and will be able to pay a dividend under the current regulations. Some credit unions want to be able to pay a portion of their dividend out of previous year's surplus, which they have prudently put aside. I understand that credit unions can't touch their statutory reserve, but I don't think any of them want to. They just want to be able to use surplus funds that were put aside in previous years. And they haven't asked the Governemnt for any subsidies.

Compare this to, oh, let's say Anglo Irish Bank. They've lost billions, they are under criminal investigation, they are receiving billions of our money in bailouts. And they're paying top dollar interest rates on savings e.g. 5.5%. Now, whose money are they using to pay these rates? Ours!


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## kaplan

@catch 22

The sentence is correct. Credit unions as regulated credit institutions are not guaranteed by the government. Guaranteeing a bank is not the same thing as compensating savers in the event of one failing. 

People who save with credit unions are to be covered under the Irish Deposit Protection Scheme which is intended to compensate them up €100,000. Laws giving effect to this have not yet been passed. 

The financial regulator did not authorise bank bonds to 2007. Bonds of a certain quality were permitted under the Trustee Investment Order – nothing to do with the FR. The FR moved to restrict investments in late 2006 but could not make its guidelines mandatory. It wanted more severe restrictions enacted in legislation but had to settle for what amounted to be a non-mandatory code. 

About half of all credit unions will not pay a dividend. They are legally only permitted to pay a dividend from profits this year or where they have set aside profits from previous years for paying future dividends. The matter or statutory or non-statutory reserves doesn’t apply. 

_“Mr Logue said told the Irish Independent yesterday that credit union legislation expressly forbids credit unions from paying a dividend if they make a loss. _
_He said it would be against the letter of the law and the spirit of the Credit Union Act for a loss-making credit union to pay a dividend. Dividends, expressed as a percentage, are roughly equivalent to the interest rate individuals receive from a bank when they deposit money. Credit unions declare a dividend at end of their financial year based on the surplus for that year. _
_Under the law, credit unions can only pay a dividend out of that year's surplus, or from a previous year's surplus if that money was specifically put aside to pay a future dividend. _
_They cannot pay a dividend out of their reserves._ …….Mr Logue said there was "pressure coming from various interest groups" for loss-making credit unions to be allowed pay a dividend by using their reserves. 
"We see no benefit in trying to create artificial confidence by paying a dividend out of reserves. It is not prudent and not in the members' interests." http://www.independent.ie/business/personal-finance/investments/loss-makers-warned-not-to-make-dividend-payment-1761128.html


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## Catch22

Good to know my savings in the credit union are guaranteed up to €100,000.

I notice the top three banks are all paying 0.01% gross on demand deposit accounts, which doesn't amount to a hill of beans. So even if some credit unions don't pay a dividend, there's not much of a difference between nil and 0.01 minus 25%! At least the credit unions offer other benefits to members like life savings insurance.

And of course, there's still the mad situation where a credit union can't pay a dividend from funds they've put aside from previous years surpluses, yet the likes of Anglo (and others) can pay top dollar rates even though they're broke, are getting bailed out by the taxpayer, are under criminal investigation etc. etc. etc.


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## TSThomas

Catch22 said:


> And of course, there's still the mad situation where a credit union can't pay a dividend from funds they've put aside from previous years surpluses, yet the likes of Anglo (and others) can pay top dollar rates even though they're broke, are getting bailed out by the taxpayer, are under criminal investigation etc. etc. etc.



But they're 2 completely different products. As per Creditunion.ie;

_*What return will I get on my credit union savings?*

Every share you hold with your credit union for the year is eligible for a dividend when declared. A dividend is the return on your shares and it is paid by your credit union out of surplus.*

__ *Past performance is not a reliable guide to future performance.  _

_ The amount of your dividend will depend on:  _


_The amount of shares you have saved (one share is equal to €1/£1stg)._
_The surplus income available for distribution by your credit union to members._
 _ Only members of your credit union receive a dividend from your credit union. The amount paid to members varies from one credit union to another. _


I.e. you weren't guaranteed any return on a Credit Union savings account in the first place.

Conversely, with a bank account (Yes, even Anglo Irish Bank!) you are, as that's what you signed up to.


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## kaplan

@ catch 22
Yes your money whether in a share account or much rarer deposit account is to be guaranteed under the Deposit Protection Scheme – you will be compensated in the event of the failure of your credit union. The compensation will come from a fund which will be paid into by credit unions and banks and should it run dry it will be topped up by credit unions and banks. It can also be temporarily topped up from the central bank’s accounts. Key point it is not a government guarantee but a scheme backed by the full faith and credit of the state. Furthermore it is not quite clear what happens to netting deposits for example if you have a loan of 50k and a share account of 50k with a failed credit union, your loan may be reduced and you may not receive any compensation for your savings. The Irish DGS is silent on this aspect of what is sometimes called the bankers lien and with credit unions attached savings ….

Irish credit unions are unique amongst developed credit unions in continuing to insist on paying dividends from profits made. Everywhere else has treated dividends and associated share accounts as interest bearing type accounts for decades. US credit unions moved to guaranteeing dividend rates years ago. Canadians and Australians no longer use the structure but rely on deposits. Here it seems some credit unions are barefacedly communicating that their shares have not declined as have shares in the Banks. Of course a share account is still treated as quasi capital in Irish credit unions accounts and not a deposit/liability. 

The World Council of Credit Unions international standard targets 70-80% “savings deposits to total assets – not “members capital to total assets” which is targeted at less than or equal to 20%. In contrast Irish credit union “savings deposit to total assets” are less than 3%. Shares which are treated as members capital are 83% of total assets. The Irish ratios are indicative of a movement that cannot compete at near market rates either for savings or loans and remains rooted within a financial model that had its best before date sometime in the late 80's. Many will not survive the next two years as the model is bust.

It is quite something to read the nonsense being peddled by credit unionists who would now have savers believe a dividend is not the same as interest having spent the past while extolling their higher rates when compared with bank demand deposit rates. 

To suggest that credit unions should be allowed to raid their reserves to pay a dividend flies in the face of prudential standards - the law is quite clear dividends can only be paid from this years profits or from previous years surplus set aside specifically to pay a dividend in the future.

It is also balderdash for ILCU to suggest credit unions are incurring losses only because of accounting rules – what of equity values, ISTC bonds and the perpetual buy backs at heavily discounted values. And what of bad debt write offs and non-performing loans? 

The hold to maturity agrument only holds water if the investment has a cast iron guaranteed maturity value. Then again they are also it seems looking for a Nama type bailout for impaired investments. One of the problems some are contending with is they have previously booked unrealised gains as trading income to support dividend payouts....

Life savings insurance is only of "benefit" when you are dead - to your next of kin. And the access to credit argument is tosh; less than a third of savers borrow from their credit union and many have had to curtail lending as they are illiquid

@TS Thomas : Point of information for rate comparison: A share account is not similar to a demand deposit although treated as on demand – it is in fact a 90 day notice account with the notice waived. In the event of a run on shares credit union law permits a credit union to insist on 90 days notice of withdrawal. And I agree share accounts should carry a consumer health warning along the lines of "dividends can only be paid from profits where made in any one year - no profits - no dividend" It should not come as a surprise to learn that ILCU and others are objecting to the introduction of a voluntary consumer protection code based in part on the argument that credit union members/customers are not consumers - presumably they mean they are to be treated as shareholders. To be kept in the dark and fed a diet of rhetoric.


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## Slim

kaplan said:


> @ catch 22
> Yes your money whether in a share account or much rarer deposit account is to be guaranteed under the Deposit Protection Scheme – you will be compensated in the event of the failure of your credit union. The compensation will come from a fund which will be paid into by credit unions and banks and should it run dry it will be topped up by credit unions and banks. It can also be temporarily topped up from the central bank’s accounts. Key point it is not a government guarantee but a scheme backed by the full faith and credit of the state. Furthermore it is not quite clear what happens to netting deposits for example if you have a loan of 50k and a share account of 50k with a failed credit union, your loan may be reduced and you may not receive any compensation for your savings. The Irish DGS is silent on this aspect of what is sometimes called the bankers lien and with credit unions attached savings …*Surely this is a matter fro the Central Bank/department of Finance to clarify.*
> 
> Irish credit unions are unique amongst developed credit unions in continuing to insist on paying dividends from profits made. Everywhere else has treated dividends and associated share accounts as interest bearing type accounts for decades. US credit unions moved to guaranteeing dividend rates years ago. Canadians and Australians no longer use the structure but rely on deposits.
> *Credit Unions are constrained by the law. A change would require amendment to the Credit Union Act*
> 
> Here it seems some credit unions are barefacedly communicating that their shares have not declined as have shares in the Banks. Of course a share account is still treated as quasi capital in Irish credit unions accounts and not a deposit/liability. *Surely this is just the 'Accounting Equation' at work? Credit Unions have denominated their members' savings as shares from long before equities and share delaing became commonplace and everyday matters.*
> 
> The World Council of Credit Unions international standard targets 70-80% “savings deposits to total assets – not “members capital to total assets” which is targeted at less than or equal to 20%. In contrast Irish credit union “savings deposit to total assets” are less than 3%. Shares which are treated as members capital are 83% of total assets.
> *Is this not merely semantics and what real difference does it make?*
> The Irish ratios are indicative of a movement that cannot compete at near market rates either for savings or loans and remains rooted within a financial model that had its best before date sometime in the late 80's. Many will not survive the next two years as the model is bust.
> *Why do you say the model is bust? Ceratinly CUs are constrained by legal restrictions on what they can do?**Credit Unions that go under may have tried to modernise their model too rapidly, with sophisticated investments in equiti, ISTC bonds etc? But they are in the minority.*
> It is quite something to read the nonsense being peddled by credit unionists who would now have savers believe a dividend is not the same as interest having spent the past while extolling their higher rates when compared with bank demand deposit rates. *Are they not merely stating fact? Why is it nonsense?*
> 
> To suggest that credit unions should be allowed to raid their reserves to pay a dividend flies in the face of prudential standards - the law is quite clear dividends can only be paid from this years profits or from previous years surplus set aside specifically to pay a dividend in the future.*Many credit unions have put undistributed surpluses into reserves apart from Statutory Reserve with the intention of using them in leaner years when they would be needed to top up dividend. what is wrong with now "using" those reserves rather than 'raiding' them?*
> 
> It is also balderdash for ILCU to suggest credit unions are incurring losses only because of accounting rules – what of equity values, ISTC bonds and the perpetual buy backs at heavily discounted values. *Many CUs are writing down their investments in CMS?Perpetual Bonds on a monthly basisi on the instruction of the regulator. This is regardless ofd any prospect of banks calling these bonds at future dates. The rate of write off suggests that these CUs will be able to proceed next year or certainly the following year on the basis that thos e bonds have been almost entirely written off. They will then be able to concentrate on core business, lending and investing in safe deposits.*
> And what of bad debt write offs and non-performing loans? *This is the core business that CUs have been dealing with for decades. Some will experience a better delinquency record than others. Indeed, rumour has it that a small number of CUs are goiung to be in big trouble with bad debts, partly from property speculation. Many of these will turn out to have been  badly run over the years, with loose control and a lack of supervision.*
> 
> The hold to maturity agrument only holds water if the investment has a cast iron guaranteed maturity value. Then again they are also it seems looking for a Nama type bailout for impaired investments. One of the problems some are contending with is they have previously booked unrealised gains as trading income to support dividend payouts....*It will be interesting to see how their auditors allowed them to get away with that!!*
> 
> Life savings insurance is only of "benefit" when you are dead - to your next of kin. And the access to credit argument is tosh; less than a third of savers borrow from their credit union and many have had to curtail lending as they are illiquid. *Many more CUs are liquid than those who are illiquid. Access to credit is not 'tosh'. CU sare now very often the only game in town. It will, however, present a challenge to thos e CUs to now lend on a prudent basis.*
> 
> @TS Thomas : Point of information for rate comparison: A share account is not similar to a demand deposit although treated as on demand – it is in fact a 90 day notice account with the notice waived. In the event of a run on shares credit union law permits a credit union to insist on 90 days notice of withdrawal.
> *In practice this is a meanngless distinction.*
> And I agree share accounts should carry a consumer health warning along the lines of "dividends can only be paid from profits where made in any one year - no profits - no dividend"
> *This is clear to members from the literature thye recive when they join. Most people do not join CUs for the rate of return.*
> It should not come as a surprise to learn that ILCU and others are objecting to the introduction of a voluntary consumer protection code based in part on the argument that credit union members/customers are not consumers - presumably they mean they are to be treated as shareholders. To be kept in the dark and fed a diet of rhetoric.*I am not sure vthat this is an accurate statement but in my view members of CUs should have the same rights as consumer s and bank customers*t!!


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## kaplan

Slim
Debate on credit unions is frequently sidetracked by a rhetoric that demonstrates a serious lack of thought or fact based discussion. The overwhelming majority of credit unionists have few financial qualifications and their only experience is the small works of their local credit union. Their view is formed through constant repetition of doing things as they have been done for the past 50 years. Credit unionists and their human systems have become skilled at incompetence. This is not to criticise, merely to state a position. It explains why since inception not one major core product or service development has been successfully executed. The products and services offered remain the same as they were 50 years ago. No innovation and no change – why?

My point on the DGS was made to illustrate that few if any credit union directors, managers are aware of what deposit insurance is and what its objectives are. If they were they would have objected to the states inclusion of credit unions in the banks scheme and would have insisted on a properly designed credit union system as found in the US and Canada. But that opportunity has been lost as the ILCU fought and lost in its demand for a private scheme, it did not have the competence of resources to manage. In terms of what is called the financial safety net, Ireland has the most ineffective system in the developed world. It is wholly inadequate and one of the reasons why the sector is in crisis.  

Credit unions are a unique form of banking. This is crucial to understanding what their business is and how the Irish model has become an aberration and why it is now bust. There are three distinct models for credit unions, found across the world, depending on the maturity of the sector. The first is a finance company funded through shares, leveraged off deposits where “interest” is a return on a share in profits. The second is a savings and loans specialist, funded by deposits with a broad line of savings and loan products, tracking the market on rates and the third a full service co-operative banking service offering savings, transaction accounts, small business services, mortgages, credit cards, life insurance, investments and so on. 

The Irish model has been stuck in the finance model for the past twenty years and is at the root of why credit unions cannot pay a dividend this year and why over 100 will fail within two years. Some are trying to make the shift to savings and loans but cannot do so on their own – they are missing the central resources found elsewhere. 

Stuck with the finance model, they haven’t been making enough loans for over ten years. As costs have escalated margins have shrunk and the core business of savings and loans is loss making. Some have no chance to reverse this trend and have become what the regulator and others call savings clubs. Income is entirely interest income – fee income from the few additional services provided is less that 1% of total income. Contrast this with a movement that did change, Australian credit unions are full service with interest income comprising 70% and fee income 30%.  

The reason why this has happened is in credit unionist thinking and response to their customers. Because the emphasis is in on shares and maximising the return to shareholder (dividend) credit unions have been managed to maximise profits to finance high dividend payments. Had credit unions competed close to market rates in the past ten years they would have retained an additional €300m in reserves which should have been invested in improving products, services and expanding lending activity. But they didn’t. Instead they remained fixated on share balances and were sucked into what became an investment bubble, that when it burst lost €500m. In short the ill-advised strategy promoted by the ILCU cost the movement close onto €800m in foregone financial reserves without adding the money written off on IT projects etc.

So why didn’t credit unions away from the finance model to savings and loans specialist or full service co-operatives. The answer lies in the insistence on retaining independent autonomy and innate inability to co-operate. The paradox is Irish credit unions have not learned how to co-operate with each other. 

Yet they have a marvellous opportunity to rebuild their business and begin lending again – thing is they will not be able to do this on their own and need help badly. There is only one sponsor with the pockets and power to insist on change and that is government – but what are the chances of it moving from its position where it considers credit unions less than systemically important and is maintaining the most ineffective financial safety net in the modern world.


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## Welfarite

....and would it be possible to stop 'shouting' by reverting to the standard font type and size that we all use?


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## kaplan

@Anyone1
Speculation on who posters are or are not is not something I engage in. Not that it matters much but I first became a credit union member over 30 years ago. You imply I know of the subject matter I’m writing of. Others are free to decide if I do and demonstrate through their own writing that they are knowledgeable. For now let's deal with the discussion issue at hand – *why credit unions can’t pay a dividend*.
You might find this link interesting [broken link removed]


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## kaplan

@anyone1
Deal with the issue. Credit unions are regulated credit insititutions authorised to take money from the public and lend on their own balance sheet - which is the standard definition of banking. They do not operate with the sole purpose of making profit but without profit they cannot operate. My view is based on research, analysis, professional expertise, academic emperical evidence and considered debate with other informed individuals. It is up to others to judge the merits or otherwise. 

It is frequently the case that anyone who cannot refute another’s view and cogent argument, alleges motives of the other and then attacks them based on their allegation. Why? It is either the person hasn’t the competence, knowledge, expertise to offer a cogent counter view or they realise they cannot as the facts speak for themselves. It is also frequently the case that people representing sectional interests log on to this site to anonymously promote their organisations agenda which is seen in rhetoric and hyperbole. Most thinking people intuitively recognise spin and bluster for what it is. They ask their own searching questions in pursuit of the facts and then make their own judgement based on those facts. For those reading this thread I suggest you ask your own questions of your credit union and listen for the facts through the inevitable bluff and bluster – can they pay a dividend this year and if not why not? Listen for the facts and ignore the spin. 

What’s more they should as shareholding members attend the credit union AGM this year and hear for themselves of its financial performance. Before they do they should consider the annual accounts, not that they are transparent, and set out their questions of the board of directors and management. Who knows maybe people reading this thread may resolve to exercise their right to ask questions and get answers from their credit union board. That is if they are concerned that their credit union, which they collectively own and govern, is financially stable and can continue to do what it is supposed to do which is to be a safe place for peoples savings, make prudent loans and educate people in the wise use of money

They may discover their credit union is a safe place to save, has lent prudently and invested money wisely. Or that it isn’t a save place to save, has lent imprudently and unwisely lost money in investments that should never have been made. 


You are right on one thing people should go to their credit union and ask one question - *will it be able to pay a dividend this year and if not why not?*


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## Catch22

So if credit unions had decided to change their model, they could have paid a guaranteed rate to their members on savings even if they made a loss that year. But because they don't use that model, they can't pay a dividend, even from previous years surplus. 
In other words, the likes of Anglo can pay bumped up rates to their customers even though they're making a loss, while some credit unions can't pay anything even though they may have put funds aside from previous years. Still sounds all wrong to me.

My understanding is that the very same Regulator who is now preventing credit unions from paying a dividend is the same Regulator who restricted the amount of deposits that a credit union could accept and therefore restricted credit unions from changing their model. and reading the Credit union act, i see that even where credit unions take deposits, these must be held as security against any loan, thereby restricting the credit union even more and hardly encouraging them to move away from their current model.

I see plenty of credit union service development actually. What I don't see is any sign of the Regulator allowing credit unions to operate on an even playing field.

As said previously, credit unions weren't the only ones caught out by the collapse of the banking system and it is blatantly incorrect to call them incompetent. For many years, credit unions paid a higher rate on savings than the banks and charged a lower rate on small and medium sized loans, which I would imagine is their core market.

What happened in the last number of years was that the banks became very aggressive and threw money at people, so the credit union could not compete with that when it tried to counsel members on prudent borrowing.

To portray the credit union model as bust seems to me to be skewing the picture somewhat to say the least. It's the banking model that's bust. And big time!


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## kaplan

@ catch22
You misunderstand the regulators function – it must ensure compliance with the law. It cannot change the law. It cannot agree to non-compliance. The restrictions you write of are legal restrictions not regulatory ones. Only the Minister for Finance under order or SI or the Oireachtas can change the law governing credit unions.

Thus the law and not the regulator is preventing credit unions using their reserves to pay dividends. The law is quite clear, dividends can only be paid from this year’s surplus or previous years surpluses set aside to pay for future dividends – usually called a dividend reserve account.

The regulator concerned that credit unions will try to use their reserves to pay dividends is rightly and prudentially taking action. It is doing its job. I do think however its 10% regulatory reserve requirement may need to be flexed – but only as far as 8% - anything lower is too risky- remember credit unions can only replenish reserves from operating income which is predominantly loan interest.

I didn’t call credit unions incompetent, I wrote of skilled incompetence (Credit unionists and their human systems have become skilled at incompetence.) see here: 
http://harvardbusinessonline.hbsp.harvard.edu/b02/en/common/item_detail.jhtml?id=86501

It is hardly competent to invest in instruments you do not understand and lose money which many did. Ask the Financial Ombudsman who expressed concern in one case study “The Ombudsman has also drawn this matter to the attention of the Registrar of Credit Unions in the Financial Regulator’s office as he is concerned that if this is how Credit Unions in general and brokers advising them are operating it exposes the funds of members of Credit Unions to a degree of unacceptable risk which cannot be countenanced in any financial services organisation entrusted with members’ money.” [broken link removed]

Legislation and Ministerial orders and not the Regulator establish the limits on total deposits per saver which is a prudent balance sheet safety constraint. 

The law allows for shares to be taken as security up to 25% of the outstanding loan amount which can be reduced in individual cases by credit union boards. 

There was nothing preventing credit unions moving to attracting deposits rather than shares save the mix between shares and deposits within total savers limits - which would have been addressed had they asked but they didn’t. In any event, average deposits are said to be far lower than the limits permitted. 

The last time credit unions charged a lower rate for loans was when bank rates were above 12% - an only because this is the maximum rate a credit union is legally allowed to charge. You are right they did pay a higher rate for deposits until 2008 and many still will – but from 2000 to 2008 they paid too high a rate, massaging bad debts to do so and didn’t build their reserves. It what’s called the dividend maximisation strategy – chasing high dividend rates they took on too much investment risk, hid their bad debts and many charged higher loan rates driving good customers away. Banks are bust because of the property bubble – credit unions are bust because of both an investment and property bubble and bad loans made but not written off during the boom years – Irish banks did not lose their shirts on risky investments.

It’s hardly prudent to continue topping up loans when capital is not repaid. It’s hardly prudent to massage bad debts to keep loan write downs low. Yet many did. Credit unions were agitated because people were refinancing their loans using mortgage finance that credit unions actively lobbied to be allowed to do. Just as well – imagine the loan write downs had credit unions been permitted to engage in home mortgage lending. Still it didn’t stop some from financing small scale local speculative building developers who have gone belly up owing millions. It is hardly prudent not to take security for a secured loan properly – in all cases of regulatory audits of loan security it was found to be flawed or unreliable according to the regulator. Its hardly prudent to finance home buyers down payments in the middle of a property boom – two thirds of people who borrowed unsecured to finance their down payments said they used credit union finance.

If this is a measure of competence or otherwise let others decide.


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## Catch22

Let's say I have a loan of €500 with my credit union and savings also of €500. If I wish to withdraw a measly €3.00 to pay for my toll charge, it will have to be approved by the board of directors at their next meeting. And if their last meeting happened to be yesterday, then I will have to wait for a month to get my €3.00. And that's the law.

Therefore, credit unions are forced to operate with both hands tied behind their backs. And the Registrar of Credit Unions has resisted attempts to modernise the Credit Union Act.

It's a good idea to have sufficient reserves, but for the Registrar to come along more than half way through the credit union's financial year and impose unrealistic limits in the same year just shows how out of touch the Registrar is.

A major concern regarding the Registrar is his habit of conducting his business through the media. It is thoroughly unprofessional in comparison to his counterpart in the North or in Britain, where they work quietly, but effectively, behind the scenes. The Registrar has significant powers under the Credit Union Act and should use them where required with individual credit unions rather than through general public utterances aimed at the entire credit union movement.

Credit union loan rates are and were more than competitive in comparison with the major banks. The maximum rate may be 12%, but the average rate is more like 9%, which is competitive in comparison to the banks on small and medium sized loans.

If credit unions made bad investment decisions, there were an awful lot more that made the same mistake, from the high and mighty like Dermot Desmond and Sean Quinn to the humble Anglo Irish pensioner.
The banks have had to be bailed out with billions and billions of taxpayers money. I'm not so sure about them not losing their shirts on risky investments, we could start another thread on that one.....but I am sure that we've all lost our shirts due to the greed, negligence, malpractice and downright dodginess of our banking brethren. And, if memory serves me right, we've had to pump millions of taxpayers money into AIB before, when they actually did lose their shirt on a risky investment back in the eighties called the Insurance Corporation of Ireland.

If this is the level of the banks competence, God help us all.


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## kaplan

@catch22
Nice unreconstructed credit unionist rhetoric and again I note you fail to deal with the issues. You quote the law concerning the credit union attached savings rule which is similar to a banker’s lien. It means a savings balance cannot be reduced below 25% of the outstanding loan amount. This law, written in 1998, predates the current Regulatory Authority by six years. The Regulator can only regulate according to the law and cannot change the law. The only body that can change the law is the Oireachtas once the Department of Finance draft and Minister publishes legislation. If it is nonsense then it’s the fault of those who drafted legislation including credit unions themselves represented solely by the ILCU at the time. Dail debates from the time are silent on the aspect of law you try to pin blame on the Regulator for. 

Changing laws is the remit of Government and not regulators. Nonetheless the Regulator is on public record stating the law is out of date and needs to be reformed. In fact had the Minister for Finance agreed to regulators request to change the law governing investments in 2004 credit unions would not have lost €500m in investments. I note you chose to ignore this example as it appears not to suit your argument. The fact is the Regulators efforts have been frustrated by ILCU lobbying the department of finance. 

Unfortunately for some dyed in the wool credit unionist activists the new Regulator did not play by the old rules – which amounted to a far too cosy relationship with previous regulator being far too captive of the ILCU and its agenda. 

The Regulator is on record stating compliance has not yet been achieved with the credit union act which is indicative of a legacy of non-compliance it inherited. Credit unions have been practicing a la carte compliance with the law for years and have excused this saying the law is out of date. 

Nor are diehards happy that laws are finally being supervised and compliance insisted on…in short the regulator has been doing too good a job. To suggest a regulator should work behind the scenes and not comment in public in other words be non-transparent is sheer nonsense. No regulator would ever allow itself to be muzzled simply because the regulated entities and more particularly their trade body doesn’t like what it says or does.

Credit unions lost money in investments they should never have made. No credit union board should ever have decided to invest in equities, unit linked funds, USITS, tracker bonds or any other long dated risk investment. They simply did not understand their fiduciary duty of care to the credit union and acted instead with only one stakeholder in mind and that was the saver. In short many were grossly negligent in their collective actions. Your comparisons to the worst behaviours of Irish bankers are entirely appropriate as many credit union directors and managers were just as negligent in their governance and management of the business. They should also be forced to resign.

Finally you should also check your facts on ICI as you are incorrect in what you say on the matter as well.


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## Slim

Catch22 said:


> Let's say I have a loan of €500 with my credit union and savings also of €500. If I wish to withdraw a measly €3.00 to pay for my toll charge, it will have to be approved by the board of directors at their next meeting. And if their last meeting happened to be yesterday, then I will have to wait for a month to get my €3.00. And that's the law.


 
In practice CUs will allow you to attach only a fraction of the €500, parking the rest in what is sometimes called a 'slash one' account, which can continue to operate as a main account.

The legislation is certainly in need of updating but the concept of security by attaching savings is useful and may have helped CUs from complate disaster in the boom years.

I think that the regulator conducts much of his business through the media for two main reasons, namely:
1. The bull headed opposition of the ILCU to close regulation over the years, and 
2. The likelihood that a number of large CUs have been/are being grossly mismanaged with the potential for movement shaking fallout if/when the crap hits the fan/newspapers.

I think it is unfair to be too critical of CU directors who invested in, say, perpetual bonds having received a capital guarantee from Davy/ILCU. CU boards are, in general, made up of well meaning amateurs and that is the ethos of the movement.

I think Catch22 is correct in principle about ICI and would be interested in where his 'facts' are incorrect.


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## kaplan

@Slim
The issue of perpetual bonds is a good example of where the amateurs got it badly wrong. Their blind faith in ILCU/DAVY is no excuse nor is their reliance on other “investment advisors”. Some of whom sat on credit union boards. 

Under law credit union directors are responsible and accountable for investment decisions. This implies they have the competence to make them. Implicit also is the concept of fiduciary care which requires directors to act in the best interests of the company they govern. 

Consider the business they govern – borrowing short and lending long carries risks the credit union law sought to limit on the balance sheet risks of credit unions. This is why loan amounts and terms are restricted along with savings. The law assumes credit unions will do what they are supposed to do and that is to lend the majority of their funds which is supposed to be over 70%. The balance is supposed to be held in short term highly liquid investments.  

But once Irish credit unions (unique in the world) slowed lending and piled into investment they conveniently ignored balance sheet risks constructing portfolios of long dated products and instruments. They seriously destabilised their business model even where some on the investments carried capital guarantees. This is not the fault of investment advisors but the fault of boards themselves who either did not understand the business or chose to ignore how it should have been managed. 

Of course many blindly followed their trade association’s strategy and advice. Of all the parties involved the most accountable for the credit union investment bubble was the Irish League of Credit Unions. This body promoted the high risk investment strategy, did nothing to address balance sheet risk and fought against the Regulators attempts to reign in risk taking. It continues to object to the Regulators role and efforts – instance its rejection of a regulatory reserve ratio. It even has the audacity to suggest the Regulator should not involve itself in accounting standards. 

The public will not be told of the hidden war between ILCU and the State which is ongoing since it did not get its way when the 1997 act was being enacted. It wanted statutory legal recognition for its role as self-regulator with the powers to establish mandatory prudential standards and ensure compliance.  

For a body that alleges it monitors and supervises its members through its savings protection system it did nothing to control balance sheet risks. It remains what it always has been an exclusive club for amateur directors pretending to be an association of credit unions. Its actions and behaviours are one of the primary causes of the credit union crisis along with amateur director’s bad governance.


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## Catch22

Having a different viewpoint or disagreeing with an opinion is not the same as avoiding the issues.

If you only want to hear one viewpoint, I would suggest you log on to www.it'sallaboutmycuvoice.ie. Or read the new book by The Hobbs Twins titled, "Yes, We Do Know It All, Sure We're From Cork, boy".

More seriously, the Registrar of Credit Unions was quoted in the media as saying "The chasing of return by credit unions in the past has been akin to a desert traveller chasing a mirage and this has led some credit unions into the quick sands".
This is totally irresponsible, headline chasing, discourteous language from a senior civil servant, whose duty is to regulate credit unions, with a view to maintaining their financial stability and well being.
Regardless of his opinions, such an important State office holder should not engage in public slagging.

The Financial Regulator would never dream or, more importantly, would not dare to speak in such a glib manner about the banks, despite their reckless, greedy, self serving behaviour. 

The Registrar has significant powers under the Credit Union Act and should use them judiciously to regulate, rather than engaging in tabloid type commentary, which can only cause damage to the well being of credit unions, the very opposite of what the Registrar is mandated to support.


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## kaplan

@catch22
Once again you fail to deal with the core issue. The regulator is not responsible for the €500m+ investment losses incurred across the credit union sector. The banks aren’t either. Credit unions lost €500M+ all on their own _*chasing a mirage*_ – which is a good metaphor to illustrate a point. Here’s what the Regulator had to say late last year:

*"the biggest change of all has happened due to the **enormous accumulation of surplus funds** which has developed over the past ten years. This change **has had a negative effect on the financial model, profitability **and ethos of the movement. Had these surplus funds been invested in a conservative and prudent fashion and held on behalf of members separately from the affairs of the credit union, the investment losses of the past year could have been avoided……**Many of you will be aware that my office sought for many years, to change what we considered to be an inherently risky and inappropriate investment strategy operated by credit unions. **This process of reform proved quite difficult and did not receive adequate support from some groups within the movement. **A lengthy and convoluted consultation process delayed the introduction of investment guidelines which were ultimately issued in October 2006. When I used the words “investment strategy” I did so advisedly because what occurred in the area of credit union investments was not a series of random events but arose from movement policy. " *

The *enormous accumulation of surplus funds* would not have occured had credit unions did what it "Says on the Tin - which is to lend money. 

They should have lent more and invested far less. Why this happened is complex but in the main all of the elements required to lend more, were within the control of credit unions themselves. 

It is why this year nigh on 200 will be unable to pay a dividend to savers unless permitted to use their capital reserves - which is something that can only undermine financial stability further. It is also at the heart of illiquidity or cash shortages - which is why credit unions are looking for a NAMA type bailout of the loss making investments. 

Your link isn't working but this one is : http://www.irishcuvoice.com/ 

Kaplan

ps: @catch22 your reference to Twins is intriguing - what are you driving at?


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## Catch22

Once again, having a different viewpoint or disagreeing with an opinion is not the same as avoiding the issues.

See Catch22 posts on 24/6/09, 18/6/09, 14/6/09.

We all have 20/20 vision in hindsight.


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## kaplan

@anyone
you wrote:


> Credit Unions are not looking for a bailout, so no idea where you are pulling that idea from, its a down right lie anyway


.

The ILCU has said it's looking for a government guaranteed central liquidity function which is a bailout by common definition these times. 

115 credit unions were reported to be operating at a loss for the first quarter and this figure had risen to over 200 by the second quarter. They will be unable to pay a dividend from surpluses as required by law and unless they have specifically set aside profits to pay future dividends, which very few have, they cannot legally use their reserves. This is unrelated to the proposed regulatory reserve ratio which would if introduced have caused the figures to jump to slightly over 300. 

Lending restrictions advocated by the ILCU in 1997 were improved on in 2006 but few credit unions applied for the increased limits. 

Credit unions had an option to restrict savings growth – some did as they were prudently and wisely governed. Most didn’t. 

Who knows they might once again become the leading provider of affordable financial services to ordinary people. This is of course what their purpose is.

You really should read more here: [broken link removed] 

[broken link removed] 
 Kaplan


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## Slim

Kaplan

"The ILCU has said it's looking for a government guaranteed central liquidity function which is a bailout by common definition these times." *Are you confusing the need for a government backed Savings Protection Scheme or Central Bank backed liquidity provisions with 'bailout'? They are hardly the same!!*

"115 credit unions were reported to be operating at a loss for the first quarter and this figure had risen to over 200 by the second quarter. They will be unable to pay a dividend from surpluses as required by law and unless they have specifically set aside profits to pay future dividends, which very few have, they cannot legally use their reserves. This is unrelated to the proposed regulatory reserve ratio which would if introduced have caused the figures to jump to slightly over 300." *It remains to be seen how many cannot pay dividend at year end taking all year end adjustments into consideration. Bonds have been sold and prices of remaining bonds have strengthened so many will have a slight improvement as year end approaches.*

"Lending restrictions advocated by the ILCU in 1997 were improved on in 2006 but few credit unions applied for the increased limits." *Can you elaborate on this please as I was under the impression the lending restrictions had not changed since 1997? *

"Credit unions had an option to restrict savings growth – some did as they were prudently and wisely governed. Most didn’t." *Yes, many more could have restricted savings growth but it is very difficult in a community credit union to turn members away with legitimate windfalls/savings and towards the predatory banks that we compete against. *

"Who knows they might once again become the leading provider of affordable financial services to ordinary people. This is of course what their purpose is." *Yes, true and as the banks withdraw from lending to ordinary people we are now in prime position to provide credit, however we must be careful not to rush in where banks fear to tread.*

You say time and again that CU boards are made up of amateurs but isn't that the strength of the movement? No profit motive, no 'shareholders' in the normal sense, little greed and a genuine care for the members! There are many faults at national level with ILCU and CUDA and their internecine feuding but ,overall, I know they mean well.

Would it not be possible for you to make positive suggestions from your perspective rather than spreading alarmist warnings that can only undermine the movement and may help to bring to pass the very things you warn about?


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## dewdrop

While the people managing credit unions may be amateurs in my opinion they have done a better job than our high fliers in the banking sector who recklessy lent millions to developers causing all the turmoil and pain we are all now suffering.


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## kaplan

@Slim

The guarantee being proposed is for a central liquidity system unrelated to ECB/CBI supports and stabilisation.

Lending limits (S35) were flexed in 2007: see FR website and ask yourself the question why so few credit unions appied for higher limits? http://www.financialregulator.ie/industry-sectors/credit-unions/Pages/apply.aspx

Understanding organisational systems – called human systems tells you that skilled incompetence is rarely changed from within. The internal actors cannot rewrite the script and keep doing business they way they have always done. 

The few who try to change the way things are done are blocked off by the dominant group. In the case of credit unions this dominant group, its thinking and behaviours are manifest within the ILCU and CUDA systems and within credit unions themselves. It is why change has not happened and cannot without external intervention more often than not as a result of a crisis. 

One of the pre-conditions needed to effect change is telling people the brutal facts – the hard truth their existing way of doing things no longer works.

The issue is this. Credit unions must change the way they run the business if they are to survive. They cannot do this themselves. They need help. The only sponsor with the power, resources and influence to do this is the Minister for Finance. 

Credit unions are systemically important to the nation and individually important to local communities. If enough people are concerned then maybe they will act. Democratic governance is a powerful force when focussed on doing the right thing which is to insist credit unions do what they are supposed to do and call on government to deliver on its role which is to ensure credit unions reform is implemented and they become once again a dominant provider of affordable financial services to ordinary people. People can start by attending AGM’s this year and asking the hard questions of boards.


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## Catch22

The liquidity fund idea was to give those credit unions requiring it, access to liquid funds. Most, if not all of it, would have been funded by other credit unions depositing into it. Definitely not a NAMA type bailout.

Those credit unions who decided not to avail of the increased lending limits should not be criticised, as the vast majority of credit union type loans should be paid back within 5 years and the increased limits were only suitable for some credit unions. Prudent lending limits.

Reform of the credit union movement is needed, but some of the reforms do not need new legislation and should be implemented now.

Despite assertions that credit unions have the ear of the Minister or are able to exert major influence, one suspects that the banking lobby still rule the roost in this regard, despite their own "skilled incompetence" and reckless behaviour.

It can take a long time to get new legislation passed. It would be a good sign to see the Minister acknowledge the systemic importance of the credit union movement by making orders on those sections of the CU Act that can be changed by a stroke of his pen. Reforms that all sections of the movement have been calling for.


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## kaplan

The guarantee is necessary as an interim measure as is a solution for impaired investments. Once immediate liquidity is resolved the sector will need an effective reliable central liquidity entity -for example a central credit union or similar body where credit unions are mandatorily required to deposit most of their excess liquidity/funds. 

The sector will also need an effective stablisation system designed to ring fence and fund the recovery of viable credit unions either as is or funding a merger workout arrangement with a stronger operation.

Limits were extended following protracted lobbying by the ILCU claiming credit unions were severely restricted in their lending - yet few applied for the new limits proving that restrictions were not at the root of lending stagnation.

The real problem is legislation was framed for a model that no longer works. Reforming bits won't solve for the fundamental problem of an out of date business model and badly designed financial safety net. Rules based regulation is required for credit unions but this dosen't mean they should be embedded in legislation - instead regulators are free to set rules which allows for a far more flexible response to credit union requirements.


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## hellbent

What happens when some Credit Unions announce that no dividend will be paid this year? 
Even those C.U.'s that intend to pay a dividend, normal percentage or not, will surely experience a run on deposits, as rumours begin and panic sets in. 

Should the wise remove their savings now, rather than face that scenario?


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## Slim

hellbent said:


> What happens when some Credit Unions announce that no dividend will be paid this year?
> Even those C.U.'s that intend to pay a dividend, normal percentage or not, will surely experience a run on deposits, as rumours begin and panic sets in.
> 
> Should the wise remove their savings now, rather than face that scenario?


 
Worst case scenario, the Deposit Guarantee Scheme will gurantee €100,000 per account. This would only be necessary where the CU was badly under water and had to be wound up. More likely that the credit union will seek liquidity help from ILCU Savings Protection Scheme if there is a run. This is entirely discretionary on part of ILCU. Best to do everyone a favour and reduce your account below 100k. Slim


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## mac2

You'd swear it was the end of the world, which just goes to show how good the dividends from credit unions have been in the past.

Listen, the banks are paying 0.01% MINUS DIRT on deposit accounts, so unless you've got hundreds of thousands in the credit union, you're not going to lose your shirt, ok.

Anf if you do have hundreds of thousands in the credit union, you probaly could have got better deals somewhere else already.

Anyway, I believe most credit unions will pay a dividend, and a better rate than most of the banks at that, so let there be no panic.


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## TSThomas

mac2 said:


> ... Listen, the banks are paying 0.01% MINUS DIRT on deposit accounts, so unless you've got hundreds of thousands in the credit union, you're not going to lose your shirt, ok...



Ahhh, come on, that's 4 out of 24 on It's your money that are that low. Hardly the norm.


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## oldtimer

Where did you get 4 out of 24? Cannot find on the link you have posted above. Am I misreading something? In fact the link is misleading as a guide to where best interest available. Cannot see National (UK) who are offering the second best rate at the moment (3.55%). Regarding interest in credit unions, each individual credit union will be different. Some undoubtedly will pay no interest, but some will pay dividend of up to 2%. Cannot see any go above that but will have to wait until November/December for confirmation. Until them nobody can say what any individual credit union will pay.


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## mac2

9 out of 18 banks are paying 1% or less on demand deposit accounts. The bigger ones, where most people have their ordinary deposit accounts are paying 0.01%. EBS is paying 0.03% Yippee.

3 of them don't do demand deposit accounts and lots of them have special terms and conditions.

But anyway, we'll see in November/December, how the credit unions stack up against the above. Until then, it's only speculation or rumour mongering to state otherwise.


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## TSThomas

oldtimer said:


> Where did you get 4 out of 24? Cannot find on the link you have posted above. Am I misreading something?



Ooops, that should be 5 out of 24. Read the *Demand (A.E.R.)* column; 5 are listed as 0.01%.



mac2 said:


> 9 out of 18 banks are paying 1% or less on demand deposit accounts. The bigger ones, where most people have their ordinary deposit accounts are paying 0.01%. EBS is paying 0.03% Yippee.
> 
> 3 of them don't do demand deposit accounts and lots of them have special terms and conditions.



True, but these rates are available to the public - If they're happy to accept with 0.01% that's their own choice. Credit Union Dividends are a case of "Past performance isn't an indication of future performance". As you say, we'll know in a few months!


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## kaplan

The financial regulators annual report is chilling reading. It is quite clearly worried sick about the credit union sector having provided details of what 2008 was like it is warning 2009 will be just as "challenging". Meanwhile 80 credit unionists including the entire board of the ILCU and some CUDA luminaries jetted off to Barcelona for their annual junket to the world conference of credit unions. Many have fond memories of similar junkets to Calgary, Rome, Hong Kong and the Carribbean -and are no doubt looking forward to next years jaunt to Las vegas. The cumulative cost of these junkets is well over €1m with absolutely nothing to show for what is allegedly a development opportunity - instead credit union members are told that the trip is some form of compensation for hard working unremunerated voluntary directors.


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## dobrien64

So, given that Irish nationwide are currently offering 3.75% on deposits up to 20,000, do I take that 'bird in the hand' rather than the 'two in the bush' of taking a chance on my credit union paying more than that rate?


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## Slim

dobrien64 said:


> So, given that Irish nationwide are currently offering 3.75% on deposits up to 20,000, do I take that 'bird in the hand' rather than the 'two in the bush' of taking a chance on my credit union paying more than that rate?


 
IMHO - very few CUs will pay anything approaching 3.75%. However, I also believe that the 3.75% is a short term offer and will fade away very soon, i.e. when the NAMA bonds are issued. If return is your only goal, the answer is obvious.


Slim


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## kaplan

Discussion has been renewed on a new thread here:

http://www.askaboutmoney.com/showthread.php?p=951439#post951439


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