Government announces Credit Union savings protection of €100,000

It would have been a shame to waste a good crisis !

The Irish Government has acted swiftly in the face of growing public disquiet and has announced an increase in DGS limit to €100,000 up from €20,000. Credit Unions it appears are to be included under a revised DGS. The new guarantee will be for 100% of the €100,000 doing away with the co-insurance element of the existing limit. Just how it will work for credit union savers is uncertain.

Governments action closes a serious gap in credit union savers protection that existed since 1997. It is almost two years ago since CUDA called for the inclusion of credit unions in the state DGS.

"The savings of members of Irish credit unions deserve better protection which should be on a par with that offered to savers of other authorised credit institutions such as banks. There is no logical or prudential reason not to include credit unions in the existing State compensation scheme for customers of banks and building societies."
(CUDA Submission to Joint Commitee on Finance & The Public Service Oct 2006) http://debates.oireachtas.ie/DDebate.aspx?F=FIJ20061004.xml&Node=H3#H3

Finally Government has acted sensibly. It’s amazing how a crisis can focus minds on what really matters. Its decision to include credit unions within its DGS is a timely and necessary response to growing saver disquiet and recognition of members rights to proper protection.

It is likely Government will increase the limit through the simple expedient of Ministerial order. Credit union involvement should only require a minor legislative amendment. But its not at all clear if this is the case.

Since 2003 the ILCU has consistently failed to agree to Regulatory requirements for the approval of a regulated savings protection scheme. Government action ends this controversial chapter during which the ILCU effectively sought to deny savers their rights to a statutory DGS.

Credit Union savers may be thankful government has acted resolutely and provided them with one of the highest guarantees in the EU. It would have been a shame to waste a good crisis.

But its not quite straighforwrd it seems. There appears to be a twist in the tale. The guarantee is to act as a form of "backstop" to a reformed SPS.

"The Registrar of Credit Unions in the Financial Regulator is working closely with ILCU to approve a reform to SPS. It is expected that these discussions would conclude shortly. It is intended that the guarantee that has now been announced for credit institution savers would act as a backstop to an approved SPS scheme for credit unions." (Department of Finance Press Release 20th Sept 2008 http://www.finance.gov.ie/viewdoc.asp?DocID=5466 )

Just what is meant by "backstop" is unclear at this time. The Department of Finance could have been more forthcoming. Could this be evidence of residual political captivity?

One thing is certain,it is now up to the ILCU to get its act together, agree to the Regulators principles for reform and get on with the business of reform.

Any dilution of the effect of the governments announcement will not go down well with credit union savers. Their percpetion will undoubtedly be that they are being afforded exactly the same guarantee as the banks.

How the ILCU responds remains to be seen.