10% Reserve Ratio

W

WizardDr

Registered User
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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 and the reply was that the bigger the ratio the better (that part is true) but the 10% Ratio was not a recommendation of theirs but they say a big ratio is a good thing,

The Central Bank in one of their quirky memos suggest that they are following best practice.

Ultimately this this ratio means unless CU profitability is 10% of additional assets each year, the ratio will ipso facto trend downwards to 10% and under.

This ratio is lunacy and its author should be called out.

We now have the situation of CUs refusing deposits are placed in Bank (asset) .

CBI have not been challenged on this as many credit unions are well capitalised.


This ratio is three times the 'preferred' ratio for Banks.


(BB if you reply - focus on the ratio and avoid the fact that it a CU - assume its financial institution).
 
I have given up on Credit Unions

They just don't want to reform their lending practices or their business model.

They get the regulator they deserve.

Brendan
 
Hi Pinoy

They have ridiculously high effective interest rates.

They encourage their members who have money on deposit to leave it there and borrow.

If a regulated bank did that, they would get into trouble with the regulator.

Brendan
 
I would like you just to look at the percentage (10) -v- percentage (3%).

And tell me why a CU should have a ratio that size which by the way means its RoE is also ludicrously high.

Keep the 'entity' out of it please
 
If CU have too much deposits, and not enough loans, then why do my local CUs still charge in the range 6.9% - 8.9%?

If they want to compete with PCP, and make more profit than getting 0% putting savings into banks, then lend at 2.9% / 3.9% / 4.9%.
 
Protocol said:
If CU have too much deposits, and not enough loans, then why do my local CUs still charge in the range 6.9% - 8.9%?

If they want to compete with PCP, and make more profit than getting 0% putting savings into banks, then lend at 2.9% / 3.9% / 4.9%.
Click to expand...

Both aib and ulster bank personal loans are coming is around 8% while the CU are coming in around 7% which although is high is slightly better than the banks
 
Pinoy adventure said:
while the CU are coming in around 7%
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Hi Pinoy

They are misleading you. Most credit unions require you to have shares.

So let's say you have
€10k @ 7% = €700
€3k shares@0%
Net €7k
Effective interest rate: 10%

And after a few years, you have reduced the €10k to €5k but still have €3k in shares, so you are pay €350 interest on €2k of net borrowing or 17.5%

Brendan
 
I see Mr B won't answer the straight question.

Why is Ratio 10% for CU and desired to be 3% (which most of them are bot even near).

I await.
 
Hi Merlin

I have told you that I have given up on the Credit Unions. I have wasted a huge amount of time over the years trying to help them reform but to no avail.

I don't agree with the CB approach, but as I have already said , they get the regulator they deserve.

Of course, if anyone has questions from a consumer point of view about credit unions, I would answer them.

Brendan
 
But Mr. Putin the fact that you were born with a silver spoon, has not stopped you commenting wildly, widely and unwisely at times on various matters I would have thought that you could comment on the vindictive abuse by the CBI in employing a ratio so high despite your tendency to be racist about Credit Unions and their lifestyle (I am assuming the Credit Union is a person) on their being able to exist.

Would you, could you say something on the fairness of the Ratio?

For example had Bank of Ireland had a ratio of 3% they would not have gone bust.

etc.
 
Hi Merlin

I have spent a lot of time helping the Credit Unions and they never ever listened. I resolved some time ago that I would not waste any more time.

If they ever cop themselves on by setting shares and deposits against loans and by returning unwanted cash to savers, then I probably would get involved again because I do believe in community , consumer based lending. But that is not what they do.

Brendan
 
Mr Putin

You are dodging the bullet and as an anorak for consumer issues - I am merely asking you on the morality of the 10% ratio.
 
Brendan Burgess said:
Hi Pinoy

They are misleading you. Most credit unions require you to have shares.

So let's say you have
€10k @ 7% = €700
€3k shares@0%
Net €7k
Effective interest rate: 10%

And after a few years, you have reduced the €10k to €5k but still have €3k in shares, so you are pay €350 interest on €2k of net borrowing or 17.5%

Brendan
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What would your thoughts be on loans within shares ?
Let's assume a person has 10k shares and wants too borrow 8k against there shares.good or bad idea ? Vrs withdrawing your shares are paying back weekly into your own account
 
You should never borrow money when you have money on deposit.

If you borrow €8k @7%, you will be paying €560 interest while having a net €2,000 on deposit!

No wonder the credit unions are so profitable if they can sell this idea.

Brendan
 
Brendan Burgess said:
You should never borrow money when you have money on deposit.

If you borrow €8k @7%, you will be paying €560 interest while having a net €2,000 on deposit!

No wonder the credit unions are so profitable if they can sell this idea.

Brendan
Click to expand...
It makes no sense to a financially responsible , financially secure person.
It might make a whole lot of sense if you doubt your discipline in repaying the capital withdrawn,because obviously a loan has to be repaid.
 
WizardDr said:
Ultimately this this ratio means unless CU profitability is 10% of additional assets each year, the ratio will ipso facto trend downwards to 10% and under.
Click to expand...

What are you trying to say???? The reserve ratio for banks refers to the about of AMU that a bank needs to hold in cash and the T1 ratio determines the capital ratio, neither of which have anything to do with profitability e, which really is not surprising given that profitability includes the accruals concept etc...
 
What I am trying to say is find any Bank in the world that has reserves of 10% of Total Assets and the answer will be ZERO.
That is the issue. Continue down the line 9, 8, 7 , and its still NIL ZERO ZILCH

The way the CBI have used this ratio is based on a fundamental deliberate deception.
 
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