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Credit Union Stabilisation

Credit Union Stabilisation. Dublin, Sligo, Athlone, Cork, Kilkenny, Limerick, Cookstown July 2010. Establishment and Growth. 1968 - £500 used to establish a “Stabilisation Fund”. Resolutions 17 & 18 of League AGM 1986 formally instructed the League to establish a new Scheme.

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Credit Union Stabilisation

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  1. Credit Union Stabilisation Dublin, Sligo, Athlone, Cork, Kilkenny, Limerick, Cookstown July 2010

  2. Establishment and Growth • 1968 - £500 used to establish a “Stabilisation Fund”. • Resolutions 17 & 18 of League AGM 1986 formally instructed the League to establish a new Scheme. • Resolutions 5 & 6 of League AGM 1988 established a Trust Company as part of the new framework. • SPS Rules approved at League AGM 1989.

  3. Nature of the Scheme • Basic premise – the SPS is necessary to: • protect the savings of credit union members; and • increase and maintain confidence in the movement. • Dual Purpose – stabilisation and compensation. • Assistance - “financial or otherwise”, may be made available by the Administration Committee on such terms as it may decide. • Funding - pre 2003 no direct credit union contributions. Direct contributions post 2003 (€/£ X per 1,000 assets). • Competition Authority V ILCU – May 2007 SC – no entitlement, as of right, to financial assistance. No proprietary interest. -

  4. Fund Assets • SPS operations commenced 01 October 1989. • December 1989 – SPS Fund at IR£9.6m. • December 1996 – SPS Fund at IR£28m. • July 2010 – SPS Fund at €122m (€118m + €4m).

  5. Investment of Fund 30 June 2010 • Investments €118m • Deposit A/cs €77m (3 month maturity) • Bank Bonds €35m (all 5 yr calls/10 yr maturities can be sold at any time on bond markets) • Tracker Bonds € 6m (all capital guaranteed & maturing within 2 yrs time) • Loans for Premises €4m (to 6 credit unions)

  6. Deposit Guarantee Scheme • 20 September 2008 - Minister for Finance announced the extension of the DGS to the savings of credit union members. Department Press Release: “The Registrar of Credit Unions is working closely with ILCU to approve a reform to SPS. It is expected that these discussions would conclude shortly [...] It is intended that the guarantee that has now been announced would act as a backstop to an approved SPS for credit unions.” • Maximum €100,000 per depositor, per institution guaranteed in the event of default.

  7. Section 46 Approval • 15 Meetings - July 2006 to October 2008 • 12 with Registry of Credit Unions; and • 3 with the Department of Finance. • Critical Issues in Dispute • Independence of board of directors; • Registrar’s approval for any stabilisation payments; • Unspecified vetoes/condition Registrar could impose; and • Movement consensus.

  8. Northern Ireland • 103 League affiliates in Northern Ireland • Non FSA regulated entities; • No access to the FSCS; and • No savings protection other than the SPS. • League Board Policy: Nothing in ROI regulation/legislation to jeopardise that protection for NI members and the 32 county nature of the SPS. • Art 38 (3) - Credit Unions (Northern Ireland) Order 1985 Any variation of the Scheme would require the approval of the Registrar of Credit Unions in Northern Ireland.

  9. CU Stabilisation Principles Worldwide Credit Union Stabilisation Principles Credit union stabilisation should : • Be complementary to deposit insurance. • Depend on effective and enforced regulation and compliance with compulsory financial and operational standards. • Demand robust monitoring, supervision and examination of credit unions by the administrative authority.

  10. Worldwide Stabilisation Principles (cont.) • Have power to intervene when credit unions fail to meet required financial and operational performance targets. • Cost, and be financed by, the credit union movement. • Provide technical and financial assistance.  • Depend on a strategic and monitored plan of action to re-stabilise credit unions. • Be time limited.   • Include actions to amalgamate/wind up credit unions that cannot achieve independent viability.

  11. ILCU Specific Principles The League requires that stabilisation arrangements for its member credit unions include the following principles: • All credit unions in the Republic of Ireland and Northern Ireland are eligible for participation. • Accounts of the stabilisation scheme will be consolidated within the accounts of the League.

  12. CP 44 - Questions 1. Should there be stabilisation arrangements in place for the credit union sector? Yes. 2. Should stabilisation arrangements be on a statutory or voluntary basis? All credit unions should be required to participate in a stabilisation scheme.

  13. CP 44 - Questions 3. Should there be one stabilisation scheme for all credit unions or multiple schemes? Ideally one, all Ireland, Scheme. 4. What should happen to the existing SPS fund? The existing SPS should evolve into an approved Scheme open to all credit unions in Ireland.

  14. CP 44 - Questions 5. How should the ethos of the credit union movement be protected under any arrangements? By ensuring that credit unions retain ownership and control of the Scheme – anything else would go against the self-help, co-operative ethos of the movement.

  15. CP 44 – Options • Statutory Scheme under Central Bank Control • Statutory Scheme - Executive Appointed by Central Bank • Non Statutory - Single Voluntary Scheme • Non Statutory - Multiple Voluntary Schemes • Non statutory – Maintain SPS in its Current Form • Wind Up and Transfer the SPS

  16. CP 44 – Options Statutory Options: • Under Central Bank Control • Executive Appointed by the Central Bank (with Non Executive Directors from the credit union sector) __________________________________________________________________________________________________________________ Specific legislation to provide for: • Directors and management (including appointment, removal, fitness, probity & competency requirements); and • Designation of the Bank as the competent authority to regulate with powers to carry out its functions including imposition of conditions, requirements and directions and to impose sanctions for non-compliance.

  17. FROB – Fund for Orderly Bank Restructuring Extract from CP44 “The DGS or some alternative arrangements similar to the FROB arrangements in place in Spain could be the vehicle used to provide for statutory stabilisation support and the orderly transfer of non‐viable credit unions.” Objectives and Functions of FROB “First of all, using their own initiative, entities with weaknesses have to try and find a private solution. As a second option, they can seek the support of the pertinent Deposit Guarantee Fund (FGD), if the Bank of Spain approves an action plan with the object of assuring the entity’s viability. If it does not choose either of these options, the Bank of Spain shall appoint the FROB as the provisional administrator of the entity. A restructuring plan will be formulated, ending with the merger or transfer – total or partial – of its business.”

  18. CP 44 – Options Non Statutory Options: 3. Single Voluntary Scheme 4. Multiple Voluntary Schemes 5. Maintain SPS in its Current Form _________________________________________________________ Matters to note: • None of the three would be approved by the Bank. • Current form of SPS must change (DGS).

  19. CP 44 – Options 6. Wind Up and Transfer the SPS ____________________________________________________ Matters to note: • Voluntarily transfer the assets to the statutory stabilisation scheme or DGS and ILCU members (in the Republic of Ireland) could receive a corresponding offset against the amount that they would be required to contribute. • Not the League preference.

  20. Suggested Approach • Respond to the 5 questions. • Reject the 6 options. • Clearly state the ILCU preference.

  21. ILCU Preference • Establish a new Stabilisation Company. • Membership open to all credit unions in Ireland. • Adheres to the 11 principles. • Legislative and Regulatory Approval. • Memos of Understanding with both Regulators.

  22. Time to Evolve…Again? SPS has been of central importance to the success of our movement. Stabilisation works and is a vital component of the continuance of that success. Stabilisation Fund of 1968 → SPS of 1989 SPS of 2010 → ???

  23. Appendix Credit Unions Worldwide

  24. Worldwide - At a Glance

  25. United States

  26. United States

  27. Canada Newfoundland & Labrador

  28. Canada Newfoundland & Labrador

  29. Canada Newfoundland & Labrador • 1991 - stabilisation programme established – of 18 credit unions in the Province, 12 were reporting ongoing losses. • Today - 11 credit unions exist with a combined capital to asset ratio of 4.7% with all but one reporting a surplus in the last financial year.

  30. Jamaica

  31. Jamaica

  32. Britain

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