Well when you look at the income and expenditure accounts and balance sheets of those credit unions you mention you can probably surmise at this stage that they're no better off or worse off than they were. Their cost bases haven't shrunk in line with their increased scale and their loan to asset ratios remain depressed. There are some outliers such as the Health Services Staff CU who have extremely strong lending figures but those CUs tend to have been well lent prior to the introduction of the Credit Union Restructuring Board.
Most credit unions are extremely well capitalised but the management of capital within the sector is shocking. That massive buffer will insulate them from the real effects of falling income in the coming years but without complete transformation of the business model it's likely that it will dwindle away as deficits begin to chip away. They’re extremely exposed to the low interest rate environment, not to mention the possibility of new entrants into the market coming in and stealing their lunch.
In relation to the supervision of Credit Unions, your first point, which is effectively tiered regulation, was strongly argued for in the Commission on Credit Unions Report in 2012, which ultimately resulted in the 2012 Act. However this never came to fruition and we have the bizarre situation whereby a credit union with assets of €10million, one or two staff and a couple of thousand members is subject to the same regulation as one with a quarter of a billion in assets, 5 branches, 50 staff that is offering mortgages and online banking etc. Within the one-size-fits-all regulatory framework there is an allocation of supervisory resources based on the CB’s risk framework called PRISM. In theory this means that the larger, more complex credit unions are subject to enhanced supervision based on the potential impact/proability of their failure but in practice this isn’t very effective, especially given the fact that a small credit union may appear perfectly healthy from a balance sheet point of view, whilst having asset quality issues that can be underpinned by very poor governance practices.
On your second point, this already exists through PRISM with on-site engagements one of the key mechanisms for the Registry of Credit Unions in supervising credit unions. These are followed up with a risk mitigation programme that credit unions are more or less obliged to follow. In addition to this Credit Unions are now required to have a professional CEO, Internal Audit Function, Compliance Officer and Risk Management Officer who all have statutory reporting obligations to the Board either monthly or quarterly. They also have access to a monitoring service provided by the ILCU. So there’s definitely no shortage of support!
The issue is primarily one of strategy and governance capacity. Despite having all these lines of defence credit unions can still be governed ineffectively and many boards do not possess the strategic nous required to address their viability challenges adequately. This is a big problem in smaller credit unions but it’s also a huge challenge in larger ones, including those that have merged in recent years.
In terms of member benefits, I don’t think many mergers have delivered enhanced member benefits as of yet. For smaller credit unions there are obvious benefits from a service point of view from merging into a larger credit union with more services but at a macro level there’s very little difference between say an 85million CU and a 120million CU which has a balance sheet structure that is carrying 70-80% in member deposits and 20-30% in loans. The added scale may set them up to take advantage of a changed business environment in coming years but in the absence of the federalisation of the model or the introduction of well-funded and professionally managed CUSOs the only benefit to restructuring appears to be easier supervision for the Central Bank. Indeed, from afar it would seem many merged CUs have increased their cost base rather than rationalised post-merger.
The lack of return to savers is immaterial as far as I’m concerned, especially in the current environment. In any case they’re meant to be community lenders, not investment clubs. If they do their core job well dividends will return to respectable levels, but to be depending on paltry investment returns on large deposit books whilst being 27% lent is a shameful destruction of wealth, especially when you’re lending money at 9/10% and using products such as share-secured loans.
The lending restrictions have minimal impact; the demand just isn’t there any more and they’re not increasing market share, and in many cases the restrictions are wholly warranted (even if they are applied bluntly). Any progressive well-run CU would have the restrictions lifted by now anyway.
There’s been no shortage of investment in IT either by the way, it’s just probably been wasted through duplication etc. When you have 300+ credit unions, you have a lot of service providers lining up to take their money. Sector-wide IT projects usually fail due to poor levels of support from the CUs themselves.
You’re right about the ILCU but that could take up another discussion forum, let alone thread. In fairness to them though they’re a prisoner of wider inertia in the sector.
