# Credit Union introduces charges for deposits and withdrawals from share account



## The_Banker (10 Dec 2020)

I received an email last week from my Credit Union advising that from Feb 1st 2021 they are introducing charges.

If you deposit or withdraw money you will be subject to a €1 charge per transaction (there is no charge for loan repayments). The option of paying €4 a month (€48 a year) allows you to do as many transactions a month as you like.

These charges are applied regardless of whether its on line or over the counter.
Seems a little high to me. Are any posters aware of this happening at their credit union?

I think this will cause issues for the grand parents who put a fiver a week/month away for each grand kid. I know that is a popular form of saving where I live.
I’d be interested to know if this is happening anywhere else.


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## The_Banker (10 Dec 2020)

To add to the post above.. (as I hit submit to quickly- can’t seem to edit) 

I know that credit unions are introducing a current account and that the charge is €4 a month but if you opt not to go with the current account you will still pay the €1 charge.

In addition, while students and under 18s are free from charges it isn’t clear if a parent/grandparent transferring money to a child (via savings transfer) will be subject to the fee.


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## so-crates (10 Dec 2020)

Which CU is it? I have had no such communication from my CU, Carlow.


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## NoRegretsCoyote (10 Dec 2020)

The_Banker said:


> These charges are applied regardless of whether its on line or over the counter.
> Seems a little high to me. Are any posters aware of this happening at their credit union?



Not at all strange. With very low interest rates and low inflation banks and credit unions make very little money from taking deposits, and can even lose money.

They have to introduce charges to cover their costs. Banks are doing it too.


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## The_Banker (10 Dec 2020)

so-crates said:


> Which CU is it? I have had no such communication from my CU, Carlow.



the credit union in question is First South Credit Union in Cork.


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## The_Banker (10 Dec 2020)

NoRegretsCoyote said:


> Not at all strange. With very low interest rates and low inflation banks and credit unions make very little money from taking deposits, and can even lose money.
> 
> They have to introduce charges to cover their costs. Banks are doing it too.



I agree the CU’s may be losing money but €1 to deposit or withdraw money? 
Seems to me that they are using this high charge to push people towards their new current account.

Maybe CU customers will be happy to move to this new current account for €48 a year but traditionally CU customers like the CU because they are exactly that.... Credit Unions and not banks.
If the CU movement try to take on the two main banks for current accounts I can’t see them winning a significant amount of customers. Maybe I’m wrong.
I’m coming up on 51 and my mother opened an account for me in Ballyphehane Credit Union when I was two weeks old. Ballyphehane was always a big player in the Cork Credit Union scene so took over or merged with Kinsale, The South Parish, Turners Cross and Dillons Cross Credit Unions and became First South.
There used to be a slogan on the wall of the Ballyphehane office saying “not for profit, but for service” but I think that may be changing.
I have a bank current account and other bank accounts with on line but I have always maintained my Credit Union account as I liked the way I could borrow and pay back over the set amount.. I’ve set up accounts for my kids.. 

Maybe times are just changing and the CUs are modernising and maybe that’s good. I just liked it the way it was !!!


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## NoRegretsCoyote (10 Dec 2020)

The_Banker said:


> Maybe CU customers will be happy to move to this new current account for €48 a year but traditionally CU customers like the CU because they are exactly that.... Credit Unions and not banks.


You have a funny choice of username so  

You used to "pay fees " tp the credit union via the fact that they paid a low dividend and inflation would eat away at savings.

But with market rates and inflation at zero it's just a different set of arithmetic.

I don't know enough to judge whether the mentality has changed inside the CUs, but I know the outside world has.


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## Pinoy adventure (10 Dec 2020)

If theses fees roll out nationwide my guess will be many will take there savings out of them and hoard cash at home.
The €1 per transaction seems high though


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## The_Banker (10 Dec 2020)

NoRegretsCoyote said:


> *You have a funny choice of username so*
> 
> You used to "pay fees " tp the credit union via the fact that they paid a low dividend and inflation would eat away at savings.
> 
> ...


Given to me by sarcastic friends burned from listening to my betting tips


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## The_Banker (10 Dec 2020)

Pinoy adventure said:


> If theses fees roll out nationwide my guess will be many will take there savings out of them and hoard cash at home.
> The €1 per transaction seems high though



that is what I was thinking, especially the elder CU customers.


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## 24601 (10 Dec 2020)

The_Banker said:


> I received an email last week from my Credit Union advising that from Feb 1st 2021 they are introducing charges.
> 
> If you deposit or withdraw money you will be subject to a €1 charge per transaction (there is no charge for loan repayments). The option of paying €4 a month (€48 a year) allows you to do as many transactions a month as you like.
> 
> ...



I've never come across that before. I could never understand why credit unions were bothering with current accounts - the level of switching between the banks seems non-existent so starting from scratch in a market that has two massive players, and where credit unions have no experience/reputation, seems like a bit of a strategic misstep. I can't imagine it was cheap to set up current account infrastructure. 

Your credit union seems to be using an extortionate transactional charge to make you get a current account with them. I'm not sure this is a very wise long term position to take. Assuming they are a typical credit union they'll have about 25% of the assets out in loans leaving ~75% of the membership without loans. How many of these are bothered with the hassle of closing their current account with their bank to open a current account with their CU? Most people see them as different things anyway. My guess is many will just close their accounts and a big group of potential future borrowers will be gone forever. 

Did they try return savings to members? If this is to address the capital and negative interest risks arising from excess savings it seems wide of the mark so you'd have to conclude it is a ruse to force members to open current accounts.


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## NoRegretsCoyote (11 Dec 2020)

24601 said:


> I could never understand why credit unions were bothering with current accounts - the level of switching between the banks seems non-existent so starting from scratch in a market that has two massive players, and where credit unions have no experience/reputation, seems like a bit of a strategic misstep. I can't imagine it was cheap to set up current account infrastructure.



I can only speculate but it may have been driven by demand from the hundreds of thousands of customers who only have a CU account.

25 years ago many people were paid in cash and lived in cash, the CU was a place for saving and borrowing.

Nowadays almost everyone is paid by bank transfer, and more and more welfare payments are done that way too. Bill payment by direct debit is all the utility companies want too. You need a current account for this.

Maybe CUs were afraid that if they didn't offer current accounts then people would leave for the banks and never come back.


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## 24601 (11 Dec 2020)

NoRegretsCoyote said:


> I can only speculate but it may have been driven by demand from the hundreds of thousands of customers who only have a CU account.
> 
> 25 years ago many people were paid in cash and lived in cash, the CU was a place for saving and borrowing.
> 
> ...



Are there really hundreds of thousands of people that only have CU accounts? I doubt the demand is there. I think the OP's credit union is probably illustrative of that. They probably introduced current accounts after huge capital outlay with no uptake and now feel like they have to push them to justify the decision.

Also, many credit unions have offered direct debit services for years without current accounts so that's not correct. CUSOP was set up by the League a good while back to facilitate the offering of electronic services and all of this was done outside the infrastructure of current accounts until very recently anyway. 

Your last point is interesting though. If credit unions think they can compete with banks for all banking services they're mistaken. They should focus on what they were historically good at and become lean, local lenders. All this arsing around with current accounts and debit cards will only lead to an accelerated decline. The likes of Revolut & N26 can and will render them obsolete for such services overnight. They should shrink their balance sheets and put all their energies into increasing their market share of the personal loans market with some diversification into other lending types where appropriate.


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## NoRegretsCoyote (11 Dec 2020)

24601 said:


> Are there really hundreds of thousands of people that only have CU accounts?



There are about 3.5m adults in Ireland. I read a statistic years ago (that I can't track down) saying that something like 20% are "unbanked" by international standards. However the common explanation given was that many of these people have CU accounts.

So maybe only  low hundreds of thousands but still a lot of people.



24601 said:


> Your last point is interesting though. If credit unions think they can compete with banks for all banking services they're mistaken. They should focus on what they were historically good at and become lean, local lenders. All this arsing around with current accounts and debit cards will only lead to an accelerated decline. The likes of Revolut & N26 can and will render them obsolete for such services overnight. They should shrink their balance sheets and put all their energies into increasing their market share of the personal loans market with some diversification into other lending types where appropriate.



Agree 100%. Not even a large CU will ever produce as slick or functional a product as the Revolut app. But people will always need loans.


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## vandriver (11 Dec 2020)

A tie up with revolut to offer their  current account to cu customers  would be probably a cost effective way to go.
So instead they will offer an inferior product at a greater cost.


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## Brendan Burgess (11 Dec 2020)

The Irish Times is reporting the story. 









						Cork credit union set to impose charge on savings
					

First South to introduce €1 charge on deposits following widespread limits on the level of savings




					www.irishtimes.com
				




_Explaining the decision, George Cantwell, chief executive of First South Credit Union, said that it is a direct result of changes over the past five years in the financial landscape, which has impacted on the credit union’s business model.
“The world has changed very significantly,” Mr Cantwell said, pointing to the difficulty in getting a return on investments, coupled with negative rates.
He said that the “vast majority” of banks now charge negative rates on short-term deposits to the credit union sector, with rates ranging from about -0.65 per cent to -1.0 per cent. This means that savings of €10,000 will cost the credit union up to €100 to place on deposit with a bank.

“Savings are very,very expensive for credit unions,” Mr Cantwell said._


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## Brendan Burgess (11 Dec 2020)

Charlie covers it as well 









						Credit union to charge for transactions on savings accounts
					

A LARGE credit union is introducing transaction charges for members who want to access their savings accounts.




					www.independent.ie


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## 24601 (11 Dec 2020)

Brendan Burgess said:


> Charlie covers it as well
> 
> 
> 
> ...



It seems Charlie must lurk among us! Thread went up yesterday morning weeks after members were notified and it appeared on Independent.ie at 4pm. At least he asked Brendan for comment.


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## Pinoy adventure (11 Dec 2020)

Surely the 200k loss is not directly from the 200+ million in assest and bank charges on it ?


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## RedOnion (11 Dec 2020)

Pinoy adventure said:


> Surely the 200k loss is not directly from the 200+ million in assest and bank charges on it ?


They've 185m in cash / investments. An average negative rate of just 0.1% is 185,000

They'll have increased bad debts this year due to Covid, but a negative return on cash definitely doesn't help.


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## Pinoy adventure (11 Dec 2020)

RedOnion said:


> They've 185m in cash / investments. An average negative rate of just 0.1% is 185,000
> 
> They'll have increased bad debts this year due to Covid, but a negative return on cash definitely doesn't help.



So they €1 fee per transaction might off set the loss or a very small return on any investments they hold.
If they set a smaller account balance and returned some of the cash it may reduce the loss making on negative returns


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## 24601 (14 Dec 2020)

Pinoy adventure said:


> So they €1 fee per transaction might off set the loss or a very small return on any investments they hold.
> If they set a smaller account balance and returned some of the cash it may reduce the loss making on negative returns



That's what is bizarre about this place. Rather than hand back excess member funds as they should have done years ago they decided to be the first CU in the country to charge members for very basic transactions. The €1 charge must be the highest of any financial institution in the country. It seems so short-sighted if it is being done for the reasons their CEO says it is. Plenty of people will close their accounts because of it. They'll never get them back, whereas a savings cap could have been targeted at higher balance members who are unlikely to be borrowers. I'm actually astonished the board agreed to go along with this idea. 

Looking at their 2018 accounts online their problem seems to be as much to do with their very high cost-base as it is to do with negative interest rates. They had €4.5m in income and €4.1m in expenditure, of which €2.1m was salaries/pensions, and half a million of this was for key management personnel! The gap between the cost of running the place and the loan interest taken in was very big so their exposure to interest rate fluctuations should have been very obvious to see.


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## Brendan Burgess (14 Dec 2020)

24601 said:


> Looking at their 2018 accounts online their problem seems to be as much to do with their very high cost-base as it is to do with negative interest rates.



Very good analysis and it is the same for all credit unions.

They have comparatively high fixed costs.

But they are earning very little on their loans because there is no demand for loans.

They have only survived by taking in huge deposits from customers for which they pay nothing, but earn interest themselves by putting it on deposit usually for a fixed term. These fixed term deposits are maturing now and the credit unions are being charged for putting money on deposits.

So they are between a rock and a hard place.  They no longer have a source of income.  But their expenses including all the junkets for the board are still very high. 

Brendan


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## jpd (14 Dec 2020)

Are you suggesting that senior management should have their salaries and bonuses cut?

There's a novel thought!


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## 24601 (14 Dec 2020)

Brendan Burgess said:


> But they are earning very little on their loans because there is no demand for loans.



There is about €14bn in non-mortgage consumer credit, so while the market is very small relative to the mortgage market there is some demand, and it had been growing until COVID-19 hit. However, the demand is too small relative to the credit unions' combined asset-base, and they do not have a large enough share of the small market they operate in. In any event, I really don't know what this CU hopes to achieve by doing this. It is likely to do much damage long-term with very uncertain short-term benefits. I suppose if they lose half their membership that will address some of their balance sheet risk!


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## Sconeandjam (14 Dec 2020)

The credit union ethos many years ago was to use funds to help those who could not get a ordinary loans in banks due to low income or on sw. The loans were small like holiday, holy communion Christmas. In small towns the credit unions were able to manage those who did not pay and others that were worried about others hearing they did not pay their loans they paid every week.
The Regulator are pushing credit unions to be like a bank and fill in the gap between large pillar banks. Many now provide mortgages and large loans for high end cars.
I am with one credit union and the regulator pushed them to merge with other credit unions that were in large debts or struggling due to their issuing very large loans to those who would not pay but could pay. The debts in those credit unions are piling up and due to bad management allowing people not to pay their debts. Instead of letting the credit union go bankrupt the regulator forced the taking on of the credit union. The shareholders who have accounts objected to it but it went ahead anyway.


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## Brendan Burgess (15 Dec 2020)

24601 said:


> Looking at their 2018 accounts online



Hi 246  - Can you provide a link?  I searched but couldn't find them.

Brendan


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## 24601 (15 Dec 2020)

Brendan Burgess said:


> Hi 246  - Can you provide a link?  I searched but couldn't find them.
> 
> Brendan



Hi Brendan - they're here from pg15 onwards:


			https://www.1cu.ie/cuweb/wp-content/uploads/St.-Josephs-CU-Mayfield-Section-130-Booklet-Web-Version.pdf


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## Brendan Burgess (15 Dec 2020)

Hi 24601

I have extracted the key pages from these accounts and attached them to this post.

Those accounts show the horrific problems facing the credit union.  These accounts are two years old.  They were flattered by €1.8m of investment income and a write-back of bad debts of €1.1m. I have removed these to show what the 2020 accounts might look like.






That is a very serious loss for such a small institution.

Fortunately, the balance sheet can well absorb this level of losses for a few years, so members' money is not in danger.

But it's very hard to see how this credit union can return to profitability any time soon.  I doubt if charging members €1 per transaction will make much of a dent. 

They probably need a fundamental restructuring. 

Return all the surplus cash to members
Scrap all the branches bar one
Oddly enough, set a minimum sized share account of €20k and restrict it to a few hundred members - to cut down the costs of dealing with small shareholders
Scrap the share and death benefit insurance
Brendan


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## Brendan Burgess (15 Dec 2020)

Balance sheet






They have €133m in cash, but only need €12m to fund the level of loans.  In fact, they need less than €12m because the borrowers who owe €36m probably have about €12m in shares.

So they could set one against the other, and the net loans are probably only €24m. In other words, they are very close to financing all loans through the reserves without needing any shares.


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## 24601 (15 Dec 2020)

Brendan Burgess said:


> They probably need a fundamental restructuring.
> 
> Return all the surplus cash to members
> Scrap all the branches bar one
> ...



As a paper exercise that might be an effective approach but it would never work out in practice, and would only really be feasible as part of a voluntary wind-down strategy. The idea of returning all surplus cash to members would be politically unfeasible as well as being practically impossible given the way in which savings tend to be accumulated. 

They probably do need to scrap most of the branches and reduce their operating expenses to level commensurate to their loan book size - it looks like they took in all the fixed costs of the credit unions they took over with no additional economies of scale achieved in the process. Perversely, some of the credit unions that merged with this CU in recent years were probably far better off on their own than as part of this bigger, less profitable entity. 

I'm not sure whether setting a minimum savings balance of 20k would be a wise approach (unless as part of a voluntary wind-down). Most credit union borrowers have lower balances so this strategy would likely sink the business completely since the potential pool of future borrowers would be excluded from membership, and I'm not sure whether such an approach would even be legal. 

They should definitely scrap all non essential insurance. 

I'd also caution that things were probably a bit better than 2018 going into COVID-19 given the general growth in loans across the sector and that investment income might still be a factor for a few years depending on the maturity profile of their investments, but yes, €1 transaction charges or forcing members to sign up for current accounts is not going to solve their problems. 

It's absolutely astonishing that the Central Bank was still approving mergers for this entity as recently as last year. Did you look at the accounts for the transferring credit union @Brendan Burgess ? They had a deficit of €259,548 for the 7 months year-to-date, loans of 3.7m, reserves of 2.4m and assets of 22.8m. Crazy stuff. The Central Bank had no business approving that.


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## Protocol (15 Dec 2020)

Again, I ask, why aren't these CU competing with PCP, and offering loans at 2.9% - 4.9%?

I still see 7% being charged, even 9.5%!!!!


Or else, why not come together, and lend to social housing at 2% - 2.5%?


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## jpd (15 Dec 2020)

And then you wouldn't need as much staff or managers?
But everyone wants one in THEIR town or borough

Tough call


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## Brendan Burgess (15 Dec 2020)

24601 said:


> I'm not sure whether setting a minimum savings balance of 20k would be a wise approach



My thinking here is that they need to get rid of all the small savers who use the Credit Union as an ATM.  Lodging €20 and withdrawing €10.  

So they should look for a few big term deposits.

It's completely against the spirit of the Credit Union, but they need to cut their costs dramatically if they want to survive. 

Brendan


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## Brendan Burgess (15 Dec 2020)

24601 said:


> Did you look at the accounts for the transferring credit union @Brendan Burgess ? They had a deficit of €259,548 for the 7 months year-to-date, loans of 3.7m, reserves of 2.4m and assets of 22.8m. Crazy stuff.



I had not seen them at the time, but I have studied them now.  They are a much truer reflection of the plight of the credit union movement as they are not flattered by investment income or big write backs of bad debts.   This is what First Southern is going to look like when the investment income stops. 

I attach the key pages but here is my summary:


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## Brendan Burgess (15 Dec 2020)

24601 said:


> The Central Bank had no business approving that.



A tough one for the Central Bank.  

They have reserves of €2.5m and are probably losing around €500k a year.  So while there is no immediate danger, they would become insolvent in about 5 years.

I think that First Southern will become insolvent in about 10 years. 

First Southern got about €2.5m in reserves from the transfer, but their losses will be €500k a year higher, assuming they make no changes. 

But if they close the St Joseph's branch and fire the staff and return the surplus cash, they should benefit from it.

Brendan


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## 24601 (15 Dec 2020)

Brendan Burgess said:


> My thinking here is that they need to get rid of all the small savers who use the Credit Union as an ATM.  Lodging €20 and withdrawing €10.
> 
> So they should look for a few big term deposits.
> 
> ...



That thinking would be grand if a credit union was exclusively a balance sheet on a piece of paper. What do you think the long term prospects would be for a credit union whose membership is made up exclusively of people with large saving balances that have little to no demand for credit? They obviously have to address the balance sheet risks very aggressively but excluding the entirety of their potential future borrowing population from membership would be strategic suicide.


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## Brendan Burgess (15 Dec 2020)

24601 said:


> excluding the entirety of their potential future borrowing population from membership would be strategic suicide.



But I think that they will slowly run down their reserves through losses over the next few years anyway. 

They don't need the deposits.

But they can still lend. 

I  just can't see how these credit unions will be viable. 

Brendan


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## Sconeandjam (15 Dec 2020)

Brendan Burgess said:


> But I think that they will slowly run down their reserves through losses over the next few years anyway.
> 
> They don't need the deposits.
> 
> ...



Most this is down to the management and the regulator. The regulator told credit unions they have to have so much on deposit to cover the loans and they could not invest in bonds that were allowed before the crash. 

Did this credit union have to take on debts from bad managed credit unions? Our one did and the massive debt carried for fancy new builds, debts from non paying loans and staff on above market rates have really affected the bottom line. No one was made redundant. The financial manager who is now the CEO is on the same money as the directors in pillar banks. Dividend is non existent due to these take overs.

Even with the new rules when applying for loans such as proof of income, does not mean they will pay it back. Yet those who are on social welfare or pension that rely on the credit union do call in and pay their loans. They are the little people that lodge 20euros into their loans and a 10euro savings. This will push those to go to loans sharks or provident cheque people. 
This new Strategy might have back fired. The founding members with the credit union movement would definitely not be happy with the way the credit unions are going.


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## Brendan Burgess (15 Dec 2020)

Sconeandjam said:


> The regulator told credit unions they have to have so much on deposit to cover the loans and they could not invest in bonds that were allowed before the crash.



Hi Scone

No. They need to have reserves to cover their assets which includes cash on deposit and loans.    That is reasonable and if the Credit Unions got rid of their surplus cash, the reserves required would fall.

The credit unions had no idea what they were doing so they invested in bad bonds. The Regulator was right to stop them from doing so.

If the members want to buy speculative bonds individually, that is fine. But they should not be giving the Credit Unions surplus money to invest in bonds.

Brendan


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## Sconeandjam (15 Dec 2020)

Brendan Burgess said:


> Hi Scone
> 
> No. They need to have reserves to cover their assets which includes cash on deposit and loans.    That is reasonable and if the Credit Unions got rid of their surplus cash, the reserves required would fall.
> 
> ...


Should it not be to cover loans and a percentage of the deposits? 
The Credit unions have no where to put their money.
 It was with the advice from the League of Credit Unions and financial advisers that pushed our credit union to invest in bonds. It was the regulator after the crash that gave the big bond holders their full investment back and only a small percentage to our credit union. Massive write off that year but the staff got a pay rise!


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## Brendan Burgess (16 Dec 2020)

Sconeandjam said:


> Should it not be to cover loans and a percentage of the deposits?



That is discussed at length in this thread






						10% Reserve Ratio
					

I noted once again in the Financial Times which referred to the equivalent ratio for Banks in Europe and the requirement to have their ratio at 3% of Total Assets and allowing €1Tn (trillion) to be excluded from the assets figures.  I emailed the World Council of Credit Unions about 10% ratio...



					www.askaboutmoney.com


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