ILCU President Adairs’ pugilistic commentary reported in today’s Sunday Tribune generated a headline “Credit union boss attack on banks”. Chucking stones around your own glasshouse springs to mind.
Like other bombastic proclamations of "credit unions are safer than banks", Adairs’ reported comments miss the mark by a mile and then some.
Just like banks, credit unions are "credit institutions"; defined as taking money on deposit from the public and making loans off their own balance sheet. The fact is credit unions are banks – co-operative banking operations having a differing ownership structure to joint stock banks.
The Government €400bn guarantee was not extended to credit unions as they are too small to matter. It has absolutely nothing to do with “credit unions not wanting to be associated with bankers” as Adair would have people believe. In reality if the government extended its guarantee to cover credit unions the resultant cost and impact of regulatory scrutiny would cause severe problems both for the ILCU and many credit unions.
"We do not give out mortgages so we are not exposed" says Adair.The dogs in the street know of credit union lending to people in buying their homes. In the banks case mortgages are secured unlike the mountain of unsecured credit union property related debt. Credit unions do not have a clean pair of hands, they willingly and knowingly participated in fuelling the property bubble and are exposed to the consequences of its explosion.
He is right in saying credit unions "do not get funding from the international money markets". However it is credit union assets and not their liabilities which are hugely exposed to international money and equity markets. For example Perpetual bond, ISTC and CTT losses amounting to over €125m.
Adair makes no mention the fact that credit union deposits with Irish banks are now fully guaranteed by the Government. So if a guaranteed bank fails, credit unions are fully protected. If, as Adair says "credit unions don’t want to be associated with banks" then surely they should put their funds on deposit with non-government guaranteed deposit takers, close their bank current accounts and cease using the banks money transmission system.
Once again the SPS €110m (now called a stabilisation fund) is touted as part of savers "triple protection". It may have been in normal times but is hardly the case today.
Adair says credit unions “have to hold reserves of 10%”. Many credit unionists will be scratching their heads wondering where it says they “have to hold 10% in reserves” when all the *law requires is a 10% pre dividend allocation from whatever surplus is generated.
Talk is cheap and paper never refuses ink but eating humble pie is something altogether different. The ILCU may end up eating its words if the government or its guaranteed banks are ever called on to bail out credit unions.
http://www.tribune.ie/business/news/article/2008/oct/05/credit-union-boss-in-attack-on-banks/
*45.—(1) A credit union shall establish a reserve (to be known as its ‘‘statutory reserve’’) by allocating in respect of each financial year not less than ten per cent. of the surplus funds of the credit unionfor that purpose.
1 comments:
As a CU professional I was horrified at these remarks from our president. In another speech last weekend Mr Adair waxed lyrical on the banking crisis and on how well credit union amateurs are doing with members funds. It is quite obvious to those of us who work in the industry that the world is not as simple as Mr Adair would lead us to believe. Lets wait and see what transpires at some credit union AGM's this year before we join in our presidents gleeful dance at the demise of our colleagues in the banking fraternity. When all around you etc etc..............
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