# €100k limit on Credit Union deposits



## MrEarl (28 Dec 2015)

Hello,

What are peoples views on this new rule that the Minister for Finance has introdued (background  here ) ?

Personally, I see the rule as anti competitive. 

Savers should have freedom of choice in terms of where they place their deposits.  

A person might have a preference for the credit union movement given it's mutual ethos for example.

Obviously, competitive rates could be a nother factor, while ease of access to funds could be another example.

What do other people think ?


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## theresa1 (28 Dec 2015)

Totally agree - too much interference and making things overly complicated. I'm not with any Credit Union but I can see why they are annoyed.


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## Lightning (28 Dec 2015)

No commercial bank nor credit union should have a small number of depositors that, if they pulled their deposits, would cause the bank / credit union to be in trouble.

For example, Nationwide UK (Ireland) have a cap of 2 million EUR on deposits. Why? Nationwide UK (Ireland) want deposits spread over as many people as possible to prevent a few large depositors creating too much risk. Good risk management.

A credit union is a small organisation. Say 5 people held 200k in their accounts, and the credit union had 3 million in deposits in total. If those 5 people pulled their deposits, the credit union would be in trouble as the credit union is overly dependent on those 5 people. Just 5 people have 33% of deposits held. A massive risk.

Deposit risk weighting needs to be controlled, this is either done by the CU themselves or via regulation. I would not trust a lot of CU management to have the know-how to conduct deposit risk weighting themselves, as such I applaud Noonan's regulatory approach. That said, a more scientific approach could have been done. However, a more scientific approach could have caused much lower caps for some CU's. Therefore, on balance, Noonan has made the right move.


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## MrEarl (29 Dec 2015)

Hello CiaranT,

Firstly, you make reference to the UK's Nationwide Building Society and while your point is obviously right, the key difference there is the limit is self imposed.

Secondly, while the implication is that Mr. Noonan made this decision to help spread the risk of a CU relying on a few large depositors, I have not seen any evidence to proce that this was a significant or widespread concern within the CU movement.  Have you seen anything to support the possible risk across the CU movement (and if so, could you please link to it) ?

If Mr. Noonan was so concerned with spreading risks, then I would have expected that he would also impose limits on all of the Banks operating in Ireland and not just the CU's - whether the monetary amount was the same for all, or not.


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## Jim2007 (29 Dec 2015)

MrEarl said:


> Secondly, while the implication is that Mr. Noonan made this decision to help spread the risk of a CU relying on a few large depositors, I have not seen any evidence to proce that this was a significant or widespread concern within the CU movement.  Have you seen anything to support the possible risk across the CU movement (and if so, could you please link to it) ?.



Yes great idea! Let's just wait until it happens and blame the government et al for not doing something about it!  CUs were never intended to act as an alternative to a bank for large deposit holders and are not subject to the same safeguards.  The alternative would be to treat CUs as banks and apply Basel III to them - they'd all have to close.  Would that be a better solution???


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## MrEarl (29 Dec 2015)

Jim2007 said:


> ....The alternative would be to treat CUs as banks and apply Basel III to them - they'd all have to close.  Would that be a better solution???



If you want to go that route, then they would have to licence them as Banks so as to put them on an equal basis with Banks, in terms of what services they offer, what they can invest in etc.  It's either all or nothing, if you want to throw Basel III into the mix (and lets even make reference to CRDIV while we're at it )


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## 24601 (4 Jan 2016)

CiaranT said:


> No commercial bank nor credit union should have a small number of depositors that, if they pulled their deposits, would cause the bank / credit union to be in trouble.
> 
> For example, Nationwide UK (Ireland) have a cap of 2 million EUR on deposits. Why? Nationwide UK (Ireland) want deposits spread over as many people as possible to prevent a few large depositors creating too much risk. Good risk management.
> 
> ...



Straight out of the horse's mouth; here's what the CU Registrar had to say to the Joint Committee on Finance, Public Expenditure & Reform: "[o]ne of the arguments put forward against the cap is that it will limit the ability of credit unions to develop their business models.  This is hard to accept, given that the figures show, at this time, that savings of over €100,000 represent a very small proportion (1%) of total savings.  We also note that, at the sector-wide level, credit unions are holding extensive deposits relative to their lending needs, and many have self-imposed deposit limits well below our proposed cap." 

So even the registrar is pointing out that only 1% of total savings are above €100,000 suggesting that this blunt approach is not "good risk management" - in fact it's indicative of a pretty lazy regulatory approach. I can see the argument for a capital-weighted concentration limit or even limits being imposed directly on CU's with high-risk exposure, but a 100K limit across the board is unfair. As she also pointed out many have limits below the cap, as is their prerogative. This is the least of CU's worries but, on balance, Noonan has made the wrong move. It will have nil effect in the near future but once the sector becomes further consolidated and matures it may cause funding issues and put them at an even further competitive disadvantage with the banks. I'd imagine for most CUs it's a matter of principle.


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## Black_Adder (15 Jan 2016)

With the greatest respect to Jim2007 - and a simple summary of Basel III. In essence the total capital as a % of Total Assets is about 3%. That is three percent. The figure depends on the 'risk weighting of assets'.

For Credit Unions the figure is 10%. TEN Per cent. Its against ALL assets. It is BOGUS,lazy, punitive and should have been challenged by now and will fall apart of challenged.

That is THREE times the Banks.

Question for readers:

Name all the Banks that did not have to be bailed out?
Name all of the Credit Unions that failed excepting Newbridge.


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## Black_Adder (20 Jan 2016)

I note Marian Harkin MEP has raised the €100k limit with the European Commission.
I think it is worth remembering that you never placed money with the Credit Union for a superior financial return.
In fact those that were glad to have been able to use Credit Unions when they needed them often are happy to place
funds with them to ultimately benefit others. And though there was imprudent lending by some, their core lending was not where the problems
arose. I just wish the Central Bank had a few people who could articulate why they are worth preserving and also why their core 'viability' argument is bogus. (I posted where the APR of Ell is 1265% - one hundred times that of Credit unions.


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## Black_Adder (14 Mar 2016)

http://www.irishtimes.com/business/...ay-in-deposits-in-2015-central-bank-1.2572446

The Irish Times has revealed that Irish Savers have salted away an extra €2.5bn in saving despite the close to zero rates offered by Banks.

Why has the Central Bank brought in yet another pointless, baseless restriction on Credit Unions?

There needs to be accountability by the Central Bank who fanned the flames of the imminent destruction of the movement prior to 2012. Will it take a judicial review on the Constitutional right to a livelihood as enunciated in the Paperlink case to bring this forward?

[Have a look at Health Services CU / Dundalk CU / St Pauls CU as examples of strong CUs]

[I wanted to repost this as a separate item because of the Report but the anti-credit union alliance objected and moved the post. So most wont see the new information which is a separate point]


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## Lightning (14 Mar 2016)

Black_Adder said:


> http://www.irishtimes.com/business/...ay-in-deposits-in-2015-central-bank-1.2572446



Interesting report on 2015 deposits. Whilst, deposits were up as a whole in 2015, deposits in deposit accounts are down but deposits in current accounts are up. AIB, Ulster Bank and PTSB had a net loss of deposits while BoI and KBC had a net gain including current accounts, whilst, State Savings investments (not classified as deposits) soared.

Even taking that into account, not fully clear where the 2.5 BN increase fully came from, perhaps CU's and other players (Rabo, NUK etc) had net deposit gains.


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## TheJackal (16 Jun 2016)

Got a letter off CANA CU saying their old limit of 70K max deposits is dropping to 50K from 1 July 2016.

Seems mad that they don't want the deposits!


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## Monbretia (16 Jun 2016)

They don't want them because if they have surplus to requirements and lending demand they can't even get a good rate anywhere for the excess funds.


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## MrEarl (16 Jun 2016)

Monbretia said:


> They don't want them because if they have surplus to requirements and lending demand they can't even get a good rate anywhere for the excess funds.



Correct.  Due to current restrictions there are very few things that a Credit Union can do with it's members shares - essentially it can either lend the money out to other members, or place it on deposit with a Bank.  Within certain limits, I think they can also invest in certain categories of State and Corporate Bonds but only extremely safe Bonds, which means once again almost no return.

From what I hear, the majority of credit unions are in the same boat, all have too much money from members shares and are unable to lend it out.  Crazy situation when you consider how the Banks are growing their loan books and there are still problems with loan sharks !


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## Lightning (16 Jun 2016)

Negative returns on surplus funds is probably one reason.

Another reason is the fact that the CBI have put limits on how dependent a credit union can be on a small number of deposit holders.


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## MrEarl (16 Jun 2016)

CiaranT said:


> ....Another reason is the fact that the CBI have put limits on how dependent a credit union can be on a small number of deposit holders.



Good point CiaranT, although that also equates to restricting the Credit Unions ability to grow at any significant pace - unless it happens to have access to 500,000 members, who  have savings of €45k pp.

IMHO, the Central Bank has commenced the process of destroying the credit union movement.  It is already undermining the foundations of what credit unions were set up for, by compelling the credit unions to lend based on certain criteria, place more and more funds into provisions (above compulsory requirements), "force" them to merge etc.  

Approx. 400 credit unions will become 10 within the next decade or therabouts and then those left standing will be permitted to offer a few more services, subject to then calling themselves Building Societies or something with similar meaning.


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## willyfones (16 Jun 2016)

I would agree there seems to be an almost suspicious obsession by the Central Bank to force mergers of Credit Unions. I would have thought many CU's that may even be quite small work just fine.
Growing deposits and not enough lending is a problem for all CUs, but if they could offer some mortgage products for example. Surely members money could be put to better use, for say for very low LTV. Or those just about to clear off their mortgage

But I suspect the Credit Union lobby (if any) to be fairly weak in comparison with the banks. They should be out there kicking up a stink.. god knows the people would be on their sides vs the banks.


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## Brendan Burgess (16 Jun 2016)

The Central Bank imposes another bizarre rule on Credit Unions which I did not believe when I heard it first. 

The Credit Union must have reserves equal to 10% of their entire assets. 

So if they have €10m in loans to members and €10m in savings, they have total assets of €20m and so they need €2m of reserves. 

If they get a lot of deposits which they can't lend out, their reserve requirements could prevent them paying a dividend. 

As I type this, it sounds so ludicrous, that I wonder if I have misunderstood it. 

Brendan


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## Sarenco (16 Jun 2016)

Surely deposits constitute a liability rather than an asset, no?


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## Brendan Burgess (16 Jun 2016)

Sarenco said:


> Surely deposits constitute a liability rather than an asset, no?



The member puts €100,000 in the credit union. 

There is a double entry in the Credit Union's books 

Debit Savings and Investments/bank   €100,000 
Credit Members' shares €100,000

So when the money is put into the credit union it becomes both an asset and a matching liability. 

The bizarre thing is that the Credit Union must set aside €10,000 for the asset which is the Credit Unions' bank account/savings/investments. 

Brendan


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## kmick (17 Jun 2016)

As mentioned most credit unions in the country don't need deposits right now. Most already have deposit limits and there are actually very few CU customers who have more than 100k on deposit. Add in to this that the deposit insurance scheme only covers deposits up to 100k means anyone who has more than 100k deposit in any financial institution is essentially a lunatic.

On the flipside CU's are being regulated out of existence because of a few bad apples while banks are not having the same rules applied. One has got to ask oneself why? I have asked myself the question why is the Central bank taking such an aggressive stance against the CU's and I think the answer is this - the CBI are not going to get caught out again where there is a chain of losses that they are on the hook for. And they are not giving any credit for the fact that most Credit Unions behaved well during the boom.

Finally if you make the assumption that traditionally Credit Unions were the lender of last resort for those with poor credit or low incomes what you do now is push those people towards the moneylender where the rules become so tight they cant get money from the CU. The Central Credit Register will exasperate this for those with poor credit records because they will have to check this register for all credit being applied for over 2k.


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## MrEarl (18 Jun 2016)

It's death by a thousand cuts (for the credit unions) !

Simply unbelievable how poor the ILCU appear to be in representing their member Credit Unions ... altough I suppose it's even more unbelievable that so many Credit Unions remain as members of the League.


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## Brendan Burgess (21 Jul 2016)

I am really astonished at this €100k limit argument. 

We have seen CANA reducing theirs to €70k.
My credit union, Sandymount, reduced theirs to €50k some years ago. 

Name a credit union whose ability to lend to customers is limited by this restriction. 

The average credit union has lent 26% of its assets.  

They are primarily deposit aggregators. They take deposits from members and put them on deposit with a bank. They take a cut. The members would be far better off putting their deposits directly in the banks.

Brendan


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## willyfones (21 Jul 2016)

Hi Brendan,

I think you are missing something there,, true your Credit Union takes your shares and puts them on deposit with a bank, however a Credit Union member gets a huge return on its cash in the CU v the bank.

Credit Unions take a big loss on members 100k in shares. example below.

CU puts 100k of members money into the bank (on call/instant access money) gets about .01% from the bank.   *10 euro*
CU pays out to its member in dividend maybe 1% or 1.5% so the CU pays out *150 euro* to the member - costing the CU *140 euro*

I think the Credit Unions should forget about paying out such a handsome dividend and focus maybe on reducing lending rates.
I suspect the banks leaning on the Central Bank understand that Credit Unions could have the ability to vastly reduce their interest rates for car loans/personal loans if they were allowed to do so (by the CB).


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## Brendan Burgess (21 Jul 2016)

willyfones said:


> CU puts 100k of members money into the bank (on call/instant access money) gets about .01% from the bank. *10 euro*
> CU pays out to its member in dividend maybe 1% or 1.5% so the CU pays out *150 euro* to the member - costing the CU *140 euro*



Hi Willy

You are making my point for me. If the Credit Unions are losing so much money on their members' shares, why on earth don't they return the money to the members? 

Brendan


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## TheJackal (25 Jun 2018)

CANA CU have further reduced their max deposit limit to 30K (down from 50K and 70K previously).


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