@ catch 22
Yes your money whether in a share account or much rarer deposit account is to be guaranteed under the Deposit Protection Scheme – you will be compensated in the event of the failure of your credit union. The compensation will come from a fund which will be paid into by credit unions and banks and should it run dry it will be topped up by credit unions and banks. It can also be temporarily topped up from the central bank’s accounts. Key point it is not a government guarantee but a scheme backed by the full faith and credit of the state. Furthermore it is not quite clear what happens to netting deposits for example if you have a loan of 50k and a share account of 50k with a failed credit union, your loan may be reduced and you may not receive any compensation for your savings. The Irish DGS is silent on this aspect of what is sometimes called the bankers lien and with credit unions attached savings …Surely this is a matter fro the Central Bank/department of Finance to clarify.
Irish credit unions are unique amongst developed credit unions in continuing to insist on paying dividends from profits made. Everywhere else has treated dividends and associated share accounts as interest bearing type accounts for decades. US credit unions moved to guaranteeing dividend rates years ago. Canadians and Australians no longer use the structure but rely on deposits.
Credit Unions are constrained by the law. A change would require amendment to the Credit Union Act
Here it seems some credit unions are barefacedly communicating that their shares have not declined as have shares in the Banks. Of course a share account is still treated as quasi capital in Irish credit unions accounts and not a deposit/liability. Surely this is just the 'Accounting Equation' at work? Credit Unions have denominated their members' savings as shares from long before equities and share delaing became commonplace and everyday matters.
The World Council of Credit Unions international standard targets 70-80% “savings deposits to total assets – not “members capital to total assets” which is targeted at less than or equal to 20%. In contrast Irish credit union “savings deposit to total assets” are less than 3%. Shares which are treated as members capital are 83% of total assets.
Is this not merely semantics and what real difference does it make?
The Irish ratios are indicative of a movement that cannot compete at near market rates either for savings or loans and remains rooted within a financial model that had its best before date sometime in the late 80's. Many will not survive the next two years as the model is bust.
Why do you say the model is bust? Ceratinly CUs are constrained by legal restrictions on what they can do?Credit Unions that go under may have tried to modernise their model too rapidly, with sophisticated investments in equiti, ISTC bonds etc? But they are in the minority.
It is quite something to read the nonsense being peddled by credit unionists who would now have savers believe a dividend is not the same as interest having spent the past while extolling their higher rates when compared with bank demand deposit rates. Are they not merely stating fact? Why is it nonsense?
To suggest that credit unions should be allowed to raid their reserves to pay a dividend flies in the face of prudential standards - the law is quite clear dividends can only be paid from this years profits or from previous years surplus set aside specifically to pay a dividend in the future.Many credit unions have put undistributed surpluses into reserves apart from Statutory Reserve with the intention of using them in leaner years when they would be needed to top up dividend. what is wrong with now "using" those reserves rather than 'raiding' them?
It is also balderdash for ILCU to suggest credit unions are incurring losses only because of accounting rules – what of equity values, ISTC bonds and the perpetual buy backs at heavily discounted values. Many CUs are writing down their investments in CMS?Perpetual Bonds on a monthly basisi on the instruction of the regulator. This is regardless ofd any prospect of banks calling these bonds at future dates. The rate of write off suggests that these CUs will be able to proceed next year or certainly the following year on the basis that thos e bonds have been almost entirely written off. They will then be able to concentrate on core business, lending and investing in safe deposits.
And what of bad debt write offs and non-performing loans? This is the core business that CUs have been dealing with for decades. Some will experience a better delinquency record than others. Indeed, rumour has it that a small number of CUs are goiung to be in big trouble with bad debts, partly from property speculation. Many of these will turn out to have been badly run over the years, with loose control and a lack of supervision.
The hold to maturity agrument only holds water if the investment has a cast iron guaranteed maturity value. Then again they are also it seems looking for a Nama type bailout for impaired investments. One of the problems some are contending with is they have previously booked unrealised gains as trading income to support dividend payouts....It will be interesting to see how their auditors allowed them to get away with that!!
Life savings insurance is only of "benefit" when you are dead - to your next of kin. And the access to credit argument is tosh; less than a third of savers borrow from their credit union and many have had to curtail lending as they are illiquid. Many more CUs are liquid than those who are illiquid. Access to credit is not 'tosh'. CU sare now very often the only game in town. It will, however, present a challenge to thos e CUs to now lend on a prudent basis.
@TS Thomas : Point of information for rate comparison: A share account is not similar to a demand deposit although treated as on demand – it is in fact a 90 day notice account with the notice waived. In the event of a run on shares credit union law permits a credit union to insist on 90 days notice of withdrawal.
In practice this is a meanngless distinction.
And I agree share accounts should carry a consumer health warning along the lines of "dividends can only be paid from profits where made in any one year - no profits - no dividend"
This is clear to members from the literature thye recive when they join. Most people do not join CUs for the rate of return.
It should not come as a surprise to learn that ILCU and others are objecting to the introduction of a voluntary consumer protection code based in part on the argument that credit union members/customers are not consumers - presumably they mean they are to be treated as shareholders. To be kept in the dark and fed a diet of rhetoric.I am not sure vthat this is an accurate statement but in my view members of CUs should have the same rights as consumer s and bank customerst!!
