Joint Committee on Finance, Public Expenditure and Reform
Correspondence Item 2012/262
From: Carmel Motherway [mailto:carmelmotherway@eircom.net]
Sent: 13 August 2012 16:38
To: Quinlan, Michael
Subject: (Late) submission on general scheme of Credit Union Bill
Dear Michael,
Many thanks for agreeing to accept this late submission.
Given the deadline has already passed I’m going to confine my comments to two issues that appear to
me as particularly problematic.
The first is the general issue of concentration in savings (funding).
The Heads of Bill make provision for avoiding/managing concentration in lending, but not in saving,
though it is clear the maximum holding of 1% of assets will continue to apply. I put a question on this
topic to professor Donal McKillop at the recent UCC summer school, asking what view the
Commission had taken with regard to the funding structure of credit unions, specifically (1) whether
the dangers of merging CUs with weak balance sheet structures had been considered and (2) whether
the Commission had considered that the best way to strengthen a credit union might be to shrink it.
Professor McKillop replied that the issue had not been considered and went on to say that data on the
structure of credit union funding had not been put before the Commission.
I believe this issue is an important one and would wish to see it receiving appropriate consideration at
an appropriate time—this should probably be in advance of the ReBo “getting going”.
To put it in context, I offer one example taken at random from each of the three “tiers” of credit union
envisaged by the Commission’s report, i.e. +€100m asset-size, €10m to €100m, and <€10m, whereby:

in the small CU, 3% of members accounted for 36% of shares


in the medium size one 3% held 40% of shares
in the large CU, 3% held 34% of shares
Between the three CUs this equated to 2,153 members with €111m in savings between them. None of
the €111m in the example is “attached” to loans.
This picture is fairly typical but setting the bar at 3% of members understates the issue, if anything.
So, if around 36% of the money in credit unions belongs to 3% of their members, is not pledged to
loans and could therefore walk out the door at any time, it follows that there may be more to
“stability” than the Commission’s strong focus on capital adequacy would imply. I believe it would
be prudent to reconsider the wisdom of aiming for a smaller number of bigger credit unions unless
also intending to address the present funding imbalance as well as take steps to avoid future
concentration.
There are also clear implications for liquidity management and asset-liability management in general,
and the whole question of investments needs to be viewed in light of the structure of funding. In this
context I welcome the content of Head 3 (2) viz., “the proportion of assets kept in liquid form shall
take into account the ...composition and maturity of (its) assets and liabilities” and further note the
“regulations prescribing minimum liquidity requirements (including) maturity mismatch” and would
hope the mentioned stress testing might address concentration issues.
The second specific issue is a related one, referring to the proposal to substitute for subsection (3) of
section 32(3) of CUA 1997: that “(3) If a member of a credit union seeks to withdraw a share in or
deposit with the credit union at a time when he has an outstanding liability (including a contingent
liability) to the credit union, whether as borrower, guarantor or otherwise, that withdrawal shall be
permitted unless (a) the share or deposit sought to be withdrawn by the member is attached to a loan
issued to the member or guaranteed by the member”.
I understand the idea behind this proposal and I appreciate the apparent logic of the way it is framed.
However, it will have far-reaching and potentially very negative effects within many credit unions,
notably in respect of their ability to mitigate exposure risk by encouraging savings while repaying.
I’m not even going to address the implications for ethos here, but simply from the ‘mechanical’
perspective, this will impact severely and there are other, quite straightforward ways to achieve the
objective without constraining credit unions from doing one of their main jobs, namely to increase
their members’ financial autonomy.
Michael, I would be glad to discuss the above or elaborate on any aspect if this would be helpful.
Yours in co-operation,
Carmel Motherway (Credit union researcher and doctoral candidate)
Motherway Consulting Ltd.
"Talamh Úr"
Smithstown, Tullogher
Co. Kilkenny
Tel: 051 427945
email2: carmelmotherway@gmail.com