DUBLIN, Ireland—This country’s Central Bank plans to introduce a series of proposed rules for credit unions aimed at addressing reserves, liquidity and savings. The objective is to improve the bottom lines of Ireland’s credit unions, which have experienced significant losses over the past six years.
In advance of the legislation, a series of meetings is being held around Ireland in Dublin, Cork, Kilkenny, Limerick and Athlone, and which will involve credit unions, regulators and other stakeholders. The goal is to assemble a “feedback document” from those meetings for publication by June of 2015.
Among the biggest of changes being proposed for credit unions is more demanding metrics that will need to be met, especially in capital and liquidity. Any new credit unions chartered will need to maintain sufficient reserves to support anticipated growth and take account of expected operating losses and, “contain requirements on reserve management practices that were previously contained in guidance on the reserve management policy.”
Credit unions are required to maintain a liquidity ratio of 20% of unattached savings.
The new legislation expands the assets that qualify as liquid assets to any investment with a maturity of more than three months as long as there is a guarantee that the funds can be accessed within three months. There is also a requirement to hold a short-term liquidity ratio of at least 10% of savings where short-term liquidity is defined as cash and investments with a maturity of less than eight days. Under draft lending regulations, a credit union can now make commercial loans up to a maximum of 50% of its regulatory reserve. Moreover, any commercial loan granted to a borrower or group of borrowers that are connected that is less than €25,000 will not be included in the calculation of this limit.
Other Requirements
The new rules require that investments with a single counterparty must not exceed 25% of the total value of the credit union’s investment portfolio. Moreover, it is proposed that no investment has a maturity greater than 20 years and no more than 30% of any credit union’s portfolio may be in investments with a maturity of more than seven years, and 50% of the portfolio can be in investments no longer than five years. The draft savings rules now propose that all credit unions can have individual member’s savings of up to €100,000.
All of these changes combined with the losses are coming at a cost. The government of Ireland announced in February 2014 that it will be assessing a levy on all credit unions to create a €30m stabilisation fund over the next six years. At the end of last December, there were 390 credit unions in Ireland with total assets of just under €14bn. Of these, 195 have assets of less than €20m; 167 have asset of between €20m-€100m; and 28 have assets of over €100m.