Engendered11
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Why would Credit Unions buy Government Bonds at the moment and what might be the associated start up costs.
Credit Union V Government Bonds
- Thread starter Engendered11
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It will depend on the yield, as an investment, and there are commissions, very low though, to a broker.
Engendered11
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Yield of a little over 3% for say a six year term.
Brendan Burgess
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The problem for the Credit Unions is that they have huge amounts of members' money and there is only demand for borrowing about half of it.
They have to put the money somewhere and it's very difficult for them to find somewhere to put it. In the past they got burnt through investing in speculative bonds through Davy Stockbrokers, so they are probably being ultra cautious now.
Engendered11
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Brendan & Slim thanks for your response. I am not going to get involved in Davy bashing. The whole episode was unfortunate.
The offset of the bulk of investments within Credit Unions is obviously the Share Holding. We often hear at AGMs or at Credit Union gatherings that we are under lent by say 60/40 -80/20 etc. However, you could argue that we are carrying too much cash or in another accounting perspective too much stock. In Northern Ireland the max on an individual account is Stg.£15,000.00 (Open to correction)
How did this come about in the first place-historically many Credit Unions took in what I term large community deposits. However, the 1997 Credit Union Act in the Republic of Ireland changed the old Share limits. Each Credit Union set its own Byelaws. If you look at the Dail proceedings it is interesting to note that what drove its support was the good old property market. What was the upswing for the Credit Unions even before the 1997 Act. Essentially you had the impact of the Dublin Inter Bank Market (DIBM) where you could get a return of 14% plus on interest. During the currency crisis of say 1993 you could potentially get 24-34% interest on overnight money via the DIBM. One of the side issues around that time was that some large depositors within Credit Unions because of the high overnight rates wanted their monies back. Thankfully, the problem eased when the punt was devalued.
What changed this wondrous regime-essentially we joined the European Exchange Rate Mechanism in 1999 and there was a gradual easing to Euro rates and almost overnight the old order had changed. However, the whole deposit scene did get an uplift when the SSIAs were introduced in 2001.
However, in my view neither the banks or credit unions never adjusted to this new order of huge money inflows.
The Irish Credit Bureau is around circa 1974. In 2006 there were about four Credit Unions in that system. In 2007 there were six Credit Unions. I understand many Credit Union members are unbanked but what about the others-for argument sake say 63-70%-effectively no background check done in respect of loans granted. With the change in the regulatory regime circa 2008 the scenario of loan assessment I have just described has altered drastically plus in its wake-large provisions, Section 35 & increases in Stat. Reserves.
In many respects here the questions I pose in relation to Government Bonds is not that relevant. What is important from a funding perspective is say on our deposits/bonds etc return is that we count in all the costs such as Member Dividend, Insurance, Salary Weighting, Stat. Res. Weighting, Audit and Computer Weighting etc. Essentially we weigh up the costs of holding excess funds and make decisions in lieu of same.
The offset of the bulk of investments within Credit Unions is obviously the Share Holding. We often hear at AGMs or at Credit Union gatherings that we are under lent by say 60/40 -80/20 etc. However, you could argue that we are carrying too much cash or in another accounting perspective too much stock. In Northern Ireland the max on an individual account is Stg.£15,000.00 (Open to correction)
How did this come about in the first place-historically many Credit Unions took in what I term large community deposits. However, the 1997 Credit Union Act in the Republic of Ireland changed the old Share limits. Each Credit Union set its own Byelaws. If you look at the Dail proceedings it is interesting to note that what drove its support was the good old property market. What was the upswing for the Credit Unions even before the 1997 Act. Essentially you had the impact of the Dublin Inter Bank Market (DIBM) where you could get a return of 14% plus on interest. During the currency crisis of say 1993 you could potentially get 24-34% interest on overnight money via the DIBM. One of the side issues around that time was that some large depositors within Credit Unions because of the high overnight rates wanted their monies back. Thankfully, the problem eased when the punt was devalued.
What changed this wondrous regime-essentially we joined the European Exchange Rate Mechanism in 1999 and there was a gradual easing to Euro rates and almost overnight the old order had changed. However, the whole deposit scene did get an uplift when the SSIAs were introduced in 2001.
However, in my view neither the banks or credit unions never adjusted to this new order of huge money inflows.
The Irish Credit Bureau is around circa 1974. In 2006 there were about four Credit Unions in that system. In 2007 there were six Credit Unions. I understand many Credit Union members are unbanked but what about the others-for argument sake say 63-70%-effectively no background check done in respect of loans granted. With the change in the regulatory regime circa 2008 the scenario of loan assessment I have just described has altered drastically plus in its wake-large provisions, Section 35 & increases in Stat. Reserves.
In many respects here the questions I pose in relation to Government Bonds is not that relevant. What is important from a funding perspective is say on our deposits/bonds etc return is that we count in all the costs such as Member Dividend, Insurance, Salary Weighting, Stat. Res. Weighting, Audit and Computer Weighting etc. Essentially we weigh up the costs of holding excess funds and make decisions in lieu of same.