Naas Credit Union comments on regulatory communications

Naas Credit Union features in this years AGM bloopers. Having made provisions of €1.2m for losses in investments it should never have made in perpetual bonds it said:


....express [my] disappointment at what Mr. Logue, the Credit Union Regulator, has been saying in public forums over the past year or so. While I am sure what he says applies to some Credit Unions, unfortunately he appears satisfied to tar all Credit Unions with the same negative brush. Firstly, the criticisms do not apply to Naas Credit Union. Secondly, I believe it is very inappropriate for someone in his high profile position to be airing any of the movement’s undoubtedly dirty linen in public. He should deal with the Credit Unions in question one by one and certainly not in public.....

Where is the Deposit Guarantee Legislation ?

Something strange is afoot. The €100,000 deposit guarantee remains to be enacted despite legislation having been drafted as long ago as last October. The ECB has already provided an opinion which is probably based on the heads of the new Bill. http://www.ecb.int/ecb/legal/pdf/en_con_2008_69_f_sign.pdf

It seems one of the delaying factors is how to deal with the thorny issue of credit unions. When announced as a crisis reaction to stave off fears of a rational run, Government promised to include credit unions savers and their €11.5bn. But the promise was conditional on a “savings protection scheme”. Now this is a bit odd as it seems a guaranteed payment to savers in the event of the failure of a credit union is a requirement since 2001 when the part of the laws governing credit unions was enacted. The Act itself dates from 1997 and requires credit unions to participate in such a scheme as a condition of their authorisation to carry on business. As it stands every credit union in the state is currently in breach of the law and has been since 2001.

It gets even stranger. Before last September, when not one euro was guaranteed, the Department for Finance said that the regulator was trying to get the ILCU to agree to its scheme being approved under the act in line with 1995 EC Directive on deposit guarantee schemes (called DGS for short). This is very odd as the Directive said that if a scheme is not government backed then its providers must have the financial standing to be capable of providing a guarantees as good as if not better than a government guarantee scheme and it must be regulated by the appointed regulator( in this case the central bank). The ILCU may have a little fund of apparently €110m but it hardly has the financial resources to back a guarantee of €100,000.

So it seems the Governments new scheme for €100,000 will fit the bill in providing a guarantee when a credit union fails. So why all this talk that its guarantee scheme will act as a “backstop” to an approved credit union savings protection scheme? Does this mean that credit union savers will have to jump through some hoops before they are entitled to payment under a guarantee?

Now the ILCU Savings Protection Scheme is not approved or regulated “savings protection scheme” and the governments promise of a guarantee fits the act – so why does there have to be a half-way hotel? What does this reference to savings protection actually mean? Well it doesn’t refer to the ILCU one which carries the same words but is not the same thing – although the ILCU tried to have its recognised in law in 1997 which is where the wording got written into the act. It’s played fast and lose with the words over the years leading its credit unions into believing it provided a guarantee – even today some credit unions claim the ILCU provides a guarantee.

Well it just so happens that modern DGS also include for emergency supports for troubled but viable banks and credit unions. Sometimes it’s better to help the firm survive rather than let it fail and then pay out. But the problem is a big bank mechanism will not work for 419 odd mini-banks (credit unions). Enter the need for the half-way house called a “savings protection scheme”. It’s a right mess and only one that could have been created by Fianna Fail policy of appeasing the ILCU with its rejection of a state guarantee in favour of its private fund.

Smack bang in the middle of a financial crisis Finance was caught short and has been scrambling around trying to cobble together a solution ever since. Yet the regulator looked for a credit union DGS in early 2006 and Joe O’Toole published his Bill for one in early 2007.

As it now stands the guarantee is conditional on this “savings protection scheme” concept that has not been explained and which is a misnomer to fit in with existing credit union legal terminology- It’s a right mess.

The Enemy Within

Volunteerism is unselfish giving without financial compensation that benefits both the needs of people who are served and the need of people to be of service. This human need to be, “of service to others” used one of mans most powerful business systems – banking or to be more precise the creation of credit. It was the genesis of powerul force that enriched the lives of odinary people in so many different ways.

It is this ability to use money in the form of credit - use it today and pay for it tomorrow that creates and sustains whole societies. When it is threatened, as it is now, only then is its power to do well truly understood. And those who were trusted to protect did not are rightfully being held to public account.

Those that have abused the trust, people rested in them, to run credit insitutions safely and soundly need to be rooted out. No more so then many of the current generation of voluntary credit union directors.

Their role as community trustees was to make sure that the credit union they willingly agreed to watch over was able to continue doing what it is supposed to do.

Many have delivered but far too many have not. Far too many turned up to do well and were dominated, cajoled and bullied by clever people who get their kicks from “being important and being in charge”.

Credit unionists talk of the Dominant Director. Spotting them is easy. They have are the ones that have been in influential positions for far too long, manipulating rules they know better than others. Their power is derived from being good administrators and in depth knowledge of arcane rules. In short they arrange to paint the wall so they can enjoy the paint drying.

They are most dangerous when they elbow their way into the top spot. Here they thrive as their position and title allows them to abuse credit union resources. When challenged they use “rules” as their defence and employ lawyers to defend their aggrieved honour.

Irish credit unionism has allowed a generation of dominant directors hold power. Their hegemony, encapsulated in trade body politics resulted in the loss of millions of community capital. They are a generation who have squandered local community financial and social capital they agreed to mind and enhance. 

A cadre of dominant directors may take the credit union movement down with them. Bad things happen when good people stay silent. It is time for the good people to find a voice and defend credit unions from the threat from within.