Central Bank of Ireland Regulations for Credit Unions are like quick drying cement whilst delivering, it creates the impression of constructive action called 'structures' 'accountability' 'risk & compliance' but when it sets and is evidently wrong the structure remains in place though it makes delivery of the original stated project - to strengthen and sustain the 'sector' -much more difficult.
First the CBI cannot ever admit it is wrong which makes the removal of cement much more difficult. Second it either creates a deliberate or unintended blockage on changes that make sense. Worst of all there is difficulty challenging the Central Bank, It is easy to find breaches of blanket regulations when they cover so many areas. So a Credit Union wont challenge the Central Bank unless in a pack. The problem is that the representative bodies provide some shared processing services and there is a race on to dominate the mortgage agenda and having processes like,mortgage origination and mortgage servicing outsourced. This to me will mean the local Credit Union does not take an active art in putting the mortgage together - this raises a question on the fundamental relationship with the Credit Union. Some feel that Credit Unions cannot manage mortgages. FACT: 83 provided mortgages of some sort on which modified TRS was claimed y/e 31/12/2015.
The 10% Reserve Ratio is fake because the equivalent ratio is 3% for Banks. Do not take my word for it. Do the calculation of what the ratio is for 'Total Assets' as opposed to 'Risk Weighted Assets.' Banks would not pass the Reserve Ratio test anywhere. Then ask your selves what figure is 'right'.
If the Credit Union attracts too many share or deposit balances the equivalent funds are an asset. No matter what asset they have they must still have 10% reserve ratio. This is a block to growing shares or deposits as any expansion in the assets will see the ceiling being reached and its almost like the end of the world when in fact a ratio of 4% would have saved Bank of Ireland. Of course 10% is better than 4,5,6,7,8, or 9%. In fact it is 250% better with less complex assets. The arrival of Covid-19 has seen consumers increasing savings and there was immediate pressure on credit unions and they virtually all restricted or had already restricted the level of savings despite being the most trusted brand - that it might be but in the mind of Central Bank. This is nonsense. And the damage the ratio will cause is severe. You cannot grow your loans unless you substitute existing assets -so growing the lending book is required.
The only way to increase the reserves now is by profits. The sneaky Central Bank removed the possibility of the Credit Union issuing debentures (a charge on fixed assets) which not a single Credit Union issued - and this type of capital could have been used by Members who were prepared to have risk capital - because the Central Bank for its own purposes has treated shares as deposits for all intents and purposes.
The only real asset that members might be interested in is a Buy to Let as an augment to their Pension. This type of lending was blocked. It is now regarded as too risky and beyond a Credit Union's ability - it was simply killed off before it began. There are issues with Buy to Lets - high tax bills and a more friendly basis for S110 firms where there seems to be a much lighter regulatory regime. Is this type of lending complex if LTV is set and an income test completed? Why is there no effective lobbying by representative bodies on this?
The expected wipe out of €500m in losses didn't arrive at Department of Finance door despite the proclamation by the Central Bank that disaster was around the corner. But the Central Bank has not been challenged on how or who produced the case for toughening up on the Credit Unions. To use the Revenue language it was bogus.
There is also a restriction on home loan lending regardless of the LTV and all that. The limits are too low and they reflect paranoia or deliberate ignorance at just how good the shared services such as IT and Payments have been. Credit Unions formed PAYAC - why was this needed if you had two representative bodies?
Lending demand is now collapsing. Investment returns are closing in on zero. Yet the State does not make it easy - why have the Credit Unions not got direct access to NTMA to place surplus funds?
Therefore we are at a fundamental fork in the road. Low returns on investments. Caps on Savings; Lending demand stalling. A non responsive representative structure and a Regulator that has overcooked the goose.
First the CBI cannot ever admit it is wrong which makes the removal of cement much more difficult. Second it either creates a deliberate or unintended blockage on changes that make sense. Worst of all there is difficulty challenging the Central Bank, It is easy to find breaches of blanket regulations when they cover so many areas. So a Credit Union wont challenge the Central Bank unless in a pack. The problem is that the representative bodies provide some shared processing services and there is a race on to dominate the mortgage agenda and having processes like,mortgage origination and mortgage servicing outsourced. This to me will mean the local Credit Union does not take an active art in putting the mortgage together - this raises a question on the fundamental relationship with the Credit Union. Some feel that Credit Unions cannot manage mortgages. FACT: 83 provided mortgages of some sort on which modified TRS was claimed y/e 31/12/2015.
The 10% Reserve Ratio is fake because the equivalent ratio is 3% for Banks. Do not take my word for it. Do the calculation of what the ratio is for 'Total Assets' as opposed to 'Risk Weighted Assets.' Banks would not pass the Reserve Ratio test anywhere. Then ask your selves what figure is 'right'.
If the Credit Union attracts too many share or deposit balances the equivalent funds are an asset. No matter what asset they have they must still have 10% reserve ratio. This is a block to growing shares or deposits as any expansion in the assets will see the ceiling being reached and its almost like the end of the world when in fact a ratio of 4% would have saved Bank of Ireland. Of course 10% is better than 4,5,6,7,8, or 9%. In fact it is 250% better with less complex assets. The arrival of Covid-19 has seen consumers increasing savings and there was immediate pressure on credit unions and they virtually all restricted or had already restricted the level of savings despite being the most trusted brand - that it might be but in the mind of Central Bank. This is nonsense. And the damage the ratio will cause is severe. You cannot grow your loans unless you substitute existing assets -so growing the lending book is required.
The only way to increase the reserves now is by profits. The sneaky Central Bank removed the possibility of the Credit Union issuing debentures (a charge on fixed assets) which not a single Credit Union issued - and this type of capital could have been used by Members who were prepared to have risk capital - because the Central Bank for its own purposes has treated shares as deposits for all intents and purposes.
The only real asset that members might be interested in is a Buy to Let as an augment to their Pension. This type of lending was blocked. It is now regarded as too risky and beyond a Credit Union's ability - it was simply killed off before it began. There are issues with Buy to Lets - high tax bills and a more friendly basis for S110 firms where there seems to be a much lighter regulatory regime. Is this type of lending complex if LTV is set and an income test completed? Why is there no effective lobbying by representative bodies on this?
The expected wipe out of €500m in losses didn't arrive at Department of Finance door despite the proclamation by the Central Bank that disaster was around the corner. But the Central Bank has not been challenged on how or who produced the case for toughening up on the Credit Unions. To use the Revenue language it was bogus.
There is also a restriction on home loan lending regardless of the LTV and all that. The limits are too low and they reflect paranoia or deliberate ignorance at just how good the shared services such as IT and Payments have been. Credit Unions formed PAYAC - why was this needed if you had two representative bodies?
Lending demand is now collapsing. Investment returns are closing in on zero. Yet the State does not make it easy - why have the Credit Unions not got direct access to NTMA to place surplus funds?
Therefore we are at a fundamental fork in the road. Low returns on investments. Caps on Savings; Lending demand stalling. A non responsive representative structure and a Regulator that has overcooked the goose.
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