DUBLIN, Ireland–Ireland’s credit unions are accusing their regulator, the Central Bank, of imposing “excessive and unjustified” regulations.
The credit unions have produced research based on input from senior executives at credit unions, known as the Credit Union CEO Forum, who allege CUs are being forced to put aside far higher levels of capital than Irish and European banks, according to the Independent.
Under Central Bank rules credit unions must keep a minimum of 10% of their total assets in reserves. But the research has found that the actual reserve ratio of credit unions is far higher at 17%. This compares with an average of 9.6% for banks in Ireland, and as low as 4.8% for banks in the Netherlands.
“It explains why so many credit unions have imposed caps on the amount of savings they will accept from members,” the Independent reported. “Some are now capping savings levels at figures as low as €10,000.”
The publication noted weak demand for loans means that much of the savings in credit unions end up invested in Central Bank accounts, government bonds or mainstream banks.
Group Now Independent
The CEO Forum was originally set up by the Central Bank but now operates independently of the regulator, the Independent stated. It is chaired by Queen’s University Belfast professor of financial services Donald McKillop and aims to further the development of credit unions.
According to a paper produced by the CEO Forum, “The capital requirements on Irish credit unions are excessive and unjustified relative to the risk profile of the Irish credit union balance sheet, international credit union requirements and the requirements on competing financial institutions.”
It says the level of capital held by credit unions is much higher than Irish and European banking levels.
“The average capital requirements for European bank mortgages are 2.1%; it is 5.7% for Irish bank mortgages, while ratios of between 10% and 12.5% plus an operational risk reserve apply to Irish credit union house loans,” the Independent reported.
The Debate
The CEO Forum said those capital levels are being required even though credit unions are excluded by regulation from riskier mortgage lending, such as buy to lets, investment properties, holiday homes and SME business premises.
The Central Bank stressed the importance of adequate reserves to support credit unions’ operations, provide a base for future growth and protect against the risk of unforeseen losses, the publication added.