# ILCU to reject statutory credit union solvency scheme



## kaplan (14 Sep 2010)

Set to reject Central Bank [broken link removed]for a statutory solvency support scheme, ILCU is to ask its member credit unions to agree to its latest plan. This is the trade body that campaigned against a state backed guarantee for savers right up to September 2008. 

It’s a plan that would see it supervise credit unions for compliance with prudential standards. It wants to spin its small solvency support fund into a wholly owned subsidiary that would set standards, monitor them and act to sort out insolvent credit unions. ILCU has also demanded that regulation of credit unions be switched from the Central Bank to the Department for Trade Enterprise and Employment as it says some volunteers thought the current regulator was over-zealous.

Solvency support funds, called stablisation, are used to provide temporary solvency to an insolvent credit unions providing they can demonstrate a viable work out plan. But and the big but is this should only be done where it is cheaper to closing them down or merging them. Cheaper means that savers funds are best protected and the guarantee doesn’t have to be called on. Stabilisation is rarely used to bail out a credit union – it its insolvent it’s mostly because of poor governance and management. In almost all cases in other countries insolvent credit unions are merged or closed. 

Is the ILCU plan [broken link removed] or a case of a delusional trade body ?

Kaplan


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## Brendan Burgess (14 Sep 2010)

The last time I looked at this the stabilization fund was shared between Northern Ireland and the Republic which made it difficult to supervise. 

The fund would be fine in the event of a problem with a small credit union, but it is too small to do help out a large credit union.

While most credit unions are solvent, a significant number are in difficulty and the fund would not be able to cope with multiple problems. Even if only one or two have problems, I imagine that they could cause a run on lots of credit unions.

If the taxpayer had not bailed out Anglo Irish Bank's depositors and bondholders, a lot of credit unions would have lost a lot of money.

Given that the taxpayer has bailed out the Credit Unions (and all the other Anglo Irish Depositors) and given that we are guaranteeing €100k to each member, I think that we should call the shots. 

Brendan


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## kaplan (14 Sep 2010)

@Brendan Burgess

The current voluntary stabilisation fund only covers ILCU’s affiliates. Credit unions can opt out of the scheme. There are a number of large credit unions who do not participate – these have in excess of €1.5bn of the sectors e€12bn deposits. The fund has only c115m to cover c€14bn in assets which include c€6.5bn in unsecured loans. The top 22 credit unions each have assets greater than the fund. There are serious question marks over the funds liquidity and asset profile. The fund is intermingled with ILCU’s assets and is exposed to its creditors. Its scheme has not been approved by regulators here, in the North or UK and is not supervised by them. 

When publically tested in 2006 ILCU’s scheme didn’t prevent a run on one major credit union that threatened to become contagious. One wonders what would happen today?

The problem is this: if and when a credit union insolvency story breaks and if there is no credible resolution system in place, savers will rush to take their money out. The guarantee scheme will provide scant comfort. For example the recent run on Anglo and Governments split bank response to ring fence deposits occurred even where deposits were guaranteed.

The real test of any system that protects depositors is whether savers believe it is credible and don’t rush to be the first to take out their money. 

The Central Bank clearly favours a mandatory statutory scheme as the only vehicle that would provide the legal certainty and powers required of an emergency solvency provider.


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## kaplan (15 Sep 2010)

*ILCU contorts language once again?*

ILCU may want to reconsider its public comments in relation to what its SPS is and isn’t. 

In particular its [broken link removed]which when read is misleading and factually incorrect. I should hope that its member credit unions are not telling their members that their credit union has a guarantee under the state DGS or that the SPS is a deposit insurance scheme.

_“The extension of the governments Deposit Guarantee Scheme to credit unions means that in effect all credit unions who are affiliated to ILCU have a double guarantee which our members can depend on for security. Firstly, the savings of credit union members are guaranteed by the Government up to a maximum of €100,000 and secondly, credit unions who are affiliated to the ILCU are also covered by the Savings Protection Scheme Fund. The SPS fund also provides a discretionary guarantee for members savings up to €12,700”_ -ILCU 

Is ILCU not aware of what the states’ Deposit Protection Scheme is or it has deliberately sought to misrepresent it as guaranteeing credit unions? The states’ protection scheme guarantees savers compensation against loss up to €100,000 and not credit unions. Yet ILCU writes of “ the extension of the DGS to credit unions” – this is not correct. The scheme is extended to cover credit union savers funds and legally obligates all credit unions to have to participate. This “extension” according to ILCU means that its affiliate credit unions now “have a double guarantee”. What does it want readers to think? That credit unions are guaranteed? Having a guarantee of what? The DGS does not provide a credit union with a guarantee. And while the SPS may provide a guarantee to back a solvency work out plan, credit unions have no legal right whatsoever to this support. The ILCU SPS most certainly does not provide a guarantee to savers unless it means that if it decides it is solvent enough to pay compensation it will pay out is a guarantee- but this would be stretching the common perception of what a savings guarantee is and isn’t.


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## CUJimmy (13 Oct 2010)

Yes it is rumoured now that guarantees from the existing stabilisation fund are between € 30m and € 40m and there are fears about what other issues may now show up at crediut union financial year end 30th september.


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## kaplan (15 Oct 2010)

@cujimmy - even if the rumours are half true the SPS fund is seriously impaired. There's only a finite small fund of €120m available to support credit unions impaired solvency. With over 500 of them participating in the SPS (North 110 and South 400) having collective risk assets of over €11bn including e€5bn in loans its a wafer thin fund. Here non-performing loans are now at 15% (on average) - a bell shaped curve skewed towards 15%+. 

It's high time ILCU were called on publically by the regulator to publish full and frank SPS accounts detailing its asset and liability values, committments and schedules. This outfit claims the fund provides protection - one half of what it calls a double guarantee - to savers. Well lets see the colour of its money then.


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## kaplan (25 Nov 2010)

*ILCU SPS under significant pressure*

It's been said that upwards of €50m may now have been committed by ILCU under its SPS to a small handful of credit unions. 

Here's a slice from a recent [broken link removed]

"Currently there are no provisions in credit union legislation for the regulator to direct and fund the transfer of such credit unions into more viable entities. It is important however that we are able to take appropriate pre-emptive action to restructure credit unions where we deem this necessary in order to protect members’ funds and the maintenance of the financial stability and well-being of credit unions generally.
......with regard to stabilisation arrangements for credit unions trends emanating from the sector are suggesting that even greater reform may be required than those envisaged in our recent consultation paper. We intend to bring forward proposals in this area early in the New Year."

Looks like the Central Bank is getting ready to intervene.


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## county (25 Nov 2010)

Looks like the Central Bank is getting ready to intervene.[/QUOTE]


I think the CB have bigger fish to cook these days.  The majority of credit unions seem to be professionally managed and a lot healtier than those banks headed up by so call "experts"


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## kaplan (25 Nov 2010)

@county 
The thread is about stabilisation systems for credit unions which are mechanisms that provide solvency support for troubled but viable ones. With about 16% of household deposits they are a pretty big shoal of albeit small fish running out of oxygen in their leaking tank!


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## kaplan (11 Oct 2011)

*ILCU loses control of stabilisation system*

Trade body ILCU is to lose its credit union stabilisation role as the Central Bank moves to establish a statutory stabilisation and resolution fund. 

For years ILCU portrayed its fund as a deposit guarantee system until it conceded in the Supreme Court the scheme was only ever meant to provide stability assistance to credit unions. Despite this statement to the Supreme Court, ILCU members continued to say savings were protected up to €12,700. 
In 2008 following the extension of the DGS to credit union savers ILCU claimed credit unions were doubly guaranteed. 

Empty rhetoric was tested when its small fund of €110m was hit with investment losses of €11m and €40m+ in claims for assistance from about twenty credit unions. It's believed the fund has less than €30m in uncommitted funds available to provide support to ILCU's 390 members the South and 110 members in the North.


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