The figures behing Killorglin Credit Union

[Brendan Burgess]

The full [broken link removed] prepared by the Central Bank is well worth reading. It would be funny, if it wasn't so tragic.

I attach the key page which sets out the figures. Here they are in more readable form

|as reported| after setting off{br} attached shares
Member shares|29.9 |28
Other creditors|0.4|0.4
Total liabilities|30.3|28.4
|
|
Cash deposits and investments|26.2|26.2
Liabilities after paying all the cash to members|4.1|2.2
Gross loans to members before provisions|5.9|4
Fixed assets (mainly the building)|0.7|0.7

The book value of loans is €5.9m
But these borrowers have €1.9m in shares as security for these.
So set this money off against the debt, and the CU is left with €4m in debtors before any provision for bad loans.

Use the €26.2m in remaining cash to pay off all the other shares, and the CU would be left with €2.2m to pay shareholders and creditors.

So even if it got nothing for the building which cost over €5m to build, they would have to collect only 55% of the debtors to pay off the shareholders in full.

There would be no cost to the taxpayer or the restructuring fund.

Instead the Central Bank paid Tralee Credit Union €2.1m to take over the assets and liabilities of Killorglin Credit Union.

Now Tralee CU will be taking in €26m cash which it can't lend, because it already has a surplus of cash.

This is complete madness.

The Central Bank should have simply told Killorglin CU to wind itself down in an orderly fashion. Sure there would have been a run on it, but they could have converted their savings and investments to cash ahead of the announcement to do this.

Brendan

 

[Brendan Burgess]

Here is how the Central Bank explains why they did not go for this option:

Option of directing KCU to cease business
SRU has considered whether it would be a viable option to direct KCU to cease business if the Transfer Order was not granted with immediate effect and there was a seriously elevated level of withdrawals. SRU believes that this would not be a viable option for financial stability reasons. Throughout the financial crisis in Ireland, no credit institution closed its doors as a result of elevated levels of withdrawals, including in respect of BCU where there was an orderly liquidation with DGS cheques issued to BCU members within 7 days. If KCU closed its doors, it could lead to widespread concerns not just in relation to KCU, but in relation to the credit union sector as a whole. This is because, given the recent widespread publicity in relation to the credit union sector, this could undermine confidence in the Bank’s resolution tools and, therefore, lead to contagion. Members of other credit unions are likely to be concerned that their credit union’s doors may also be closed. In
addition, the public may not differentiate between such a direction being issued in relation to a credit union and in relation to other financial institutions. There is a concern therefore that this could have a contagion effect and could have an adverse impact on all deposit taking institutions
in Ireland.

That is such nonsense. The Berehaven Credit Union customers got their cheques in 7 days. The customers of Killorglin would have got theirs even quicker. The ILCU could have flooded the Berehaven office with staff and cash and the queue would have been dealt with promptly.

This problem arises because the Central Bank allows many credit unions to continue like this - €28m of members' shares and only €4m of net loans. All credit unions should be told to stop taking in savings from members until the ratio is reduced to a more normal level.

Brendan