Credit Union Savers Exposed During Crisis

When is Government going to provide for a proper guarantee for the millions of credit union savers ?

Opposition parties are demanding an increase in the Banks DGS (Deposit Guarantee Scheme) to €70,000 in response to growing public disquiet. They are also urging the Central Bank to be more transparent on financial stability.

The Credit Crunch has exposed enormous gaping holes in the credit union financial safety net. In a climate of public apprehension runs can start and quickly become contagious.

Today’s Government assurance it stands ready to protect all deposits should not be considered as an assurance it will stand by credit unions.

There is no DGS in place for their savers who are increasingly questioning why their savings are not insured.

Of greater concern is there is no system of emergency liquidity support for credit unions. The ILCU stabilisation fund is not designed to ship emergency liquidity into the credit union system with the urgency a run would demand. It would undoubtedly fail to pass muster and thus contribute to the contagion.

In a credit union run the only tool available to the authorities is public reassurance. But authorities would be unable to back this up with concrete credible support. Any reassurance would be discounted by a worried public.

In March 2006 Government got a clear warning when the ILCU SPS failed to prevent a run on Monaghan Credit Union. The ILCU scheme had already been found unfit for use as a DGS during expert testimony in the High Court in 2004. It was subsequently forced to admit the SPS was only ever a stabilisation scheme in the Supreme Court.

It is incomprehensible that Government has not taken steps to deliver in its duty to implement an effective DGS for credit union savers. Instead it has behaved as a political captive of the interests of an industry body.

The full story is here: http://www.irishcuvoice.com/2008/06/roots-of-captivity-and-deficient.html

The ILCU SPS scheme is not a DGS. After years of masquerading it as one and despite the Supreme Court admission,it and its members have continued with the charade.The ILCU most recent declaration is "€110m Fund Protects Savers". Its members are claiming over the airwaves that savings are insured, misrepresenting LS insurance as a some form of deposit guarantee. People are expected to believe that a voluntary trade body has the resources, competence and systems in place to deal with a crisis. Yet not a scintilla of information exists on just how it would do so. Contrast this with the Central Bank and its competence, resources and tool kit.

Government has been caught in a bind of its own making. Chillingly in January this year it was still holding the line against a proper DGS:

" I have written to the Chairman of the Financial Regulator confirming my view that an approved savings protection scheme for all credit unions should be in place as soon as possible. In this respect the Chairman of the Financial Regulator has recently advised me that it is the intention of the Financial Regulator to deal with outstanding issues such as governance and funding arrangements for the scheme and to urgently find a solution to this issue. I will be monitoring progress towards this objective in the coming weeks."( Minister for Finance Oral response to Labour Party PQ http://www.joanburton.ie/?postid=935)

Government must now as a matter of urgency provide an assurance to credit union savers that their money has the same certainty of protection and the same guarantee level as savers with the banks.

As far as proper credit union DGS is concerned this can always be dealt with once the crisis passes.

Monty