Its fairly simple Kaplan, capital reserves are simply solvency buffers, you only need large ones if you have assets that have inherently volatile valuations. The main risk asset in any CU is its loanbook. A well managed loanbook with sensible provisions reduces the solvency buffer required.Persisting in mixing loan provisioning with capital adequacy concepts is indicative of a threshold competency problem many credit unionists have.
Blanket provisions for rescheduled loans are nonsensical. Refinancing a loan is not, of itself, indicative of a members inability to repay. many members reduce their repayments when they have "broken the back" of a large loan so as to reprioiritise household cashflow.The regulatory reserve ratio was introduced abruptly to stop credit unions raiding their reserves to pay dividends to savers. The ratio forced credit unions to bolster their regulatory reserves from other reserves. It was a risk induced intervention triggered by credit union governance behaviour.
Similarly regulatory agreement to modify loans (reschedule them) was also matched with an insistence that proper provisioning applied (which is sound prudential practice) and to prevent credit unions massaging provisions as many have done in the past to pay dividends.
Not worth even exploring. The sovereign cant even tap capital markets and all our domestic banks cant either. There is no possibility of such capital being raised now or in the medium term.Despite it being legally permissible Irish credit unions do not use supplementary capital unlike their peers in Canada, Australia where they raise non-voting capital using alternatives that protect their co-operative structure. Using such capital has nothing to do with ethos.
U.S. credit unions face the same capital constraint though, as they are not permitted to use supplementary capital. They are not arguing for a reduction in capital ratios but looking for permission to raise supplementary non-voting capital that protects their co-operative status.
Why is this important? If Irish credit unions are to function as efficient lenders – something they have underperformed at since the late 1990’s – the will have to raise capital. But this is impossible to do from retained reserves (operating profit) as their operating model – the way things are done – is too expensive and is impacted by impaired assets. There are too many non-viable operations that are either insolvent, trading close to capital impairment or zombified. Funding is required to consolidate numbers down to a viable size (fund post-merger balance sheets to allow for loan losses) and supplementary capital needed so that consolidated credit unions can then function as credit unions should. Kick starting viable credit unions with fresh supplementary capital injected by the state would amount to a bailing in of the sector.
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