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Michael Noonan limits credit union deposits

Comments

  • #2
    Riverireland
    Closed Accounts Posts: 833 ✭✭✭Riverireland


    This makes absolutely no sense to me. Maybe someone can enlighten me as to the thought process behind it?


  • #3
    tomwaterford
    Closed Accounts Posts: 16,768 ✭✭✭✭tomwaterford


    Riverireland wrote: »
    This makes absolutely no sense to me. Maybe someone can enlighten me as to the thought process behind it?

    Because banks have low enough deposits and look longingly at the non bailed out credit unions deposits??


    I know myself I prefer to use the credit union to the bank....leaving small amount there for debit card use etc


  • #4
    JTMan
    Registered Users, Registered Users 2 Posts: 5,558 ✭✭✭JTMan


    Riverireland wrote: »
    This makes absolutely no sense to me.

    It makes complete sense.
    Riverireland wrote: »
    Maybe someone can enlighten me as to the thought process behind it?

    Deposits need to be spread over as many people as possible to prevent a small number of depositors creating too much risk for a financial organisation.

    For example, if Ballymoney CU had 1 depositor with 1 million EUR and 500 depositors with 100 EUR each on average, what would happen if the 1 depositor with 1 million EUR pulled his cash? The CU could collapse as they would not have 66% reserves in cash.

    No one depositor, or even a small series of depositors, should own more than circa. 1% of the total deposits. Otherwise, they create far too much risk.

    Okay, the DoF could have introduced a 1% deposit risk weighting but in reality that would not have worked. Hence, a 100k cap makes complete sense.

    Most Credit Unions are small organisations, that cannot become dependent on 1 or a small number of large depositors.

    Well done Noonan.


  • #5
    JTMan
    Registered Users, Registered Users 2 Posts: 5,558 ✭✭✭JTMan


    tomwaterford wrote: »
    Because banks have low enough deposits and look longingly at the non bailed out credit unions deposits??

    No! That is not correct nor is it the motivation. The opposite is the case of most banks, especially AIB, where they have too much deposits. AIB's loans-to-deposits ratio is now below 100%! Most banks these days are awash with deposits, as loans decrease and virtually free ECB money can be accessed.


  • #6
    badgerbroc11
    Registered Users, Registered Users 2 Posts: 141 ✭✭badgerbroc11


    It's very simple, central bank / dept of finance will bail out the banks at our cost, they won't bail out the credit unions, by limiting deposits to 100k then they can say no one lost money, but your CU will be gone just like with Newbridge where it was transferred to ptsb, the biggest basket case of the remaining Irish Banks


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  • #7
    Gaygooner
    Closed Accounts Posts: 1,601 ✭✭✭Gaygooner


    badgerbroc11 wrote: »
    It's very simple, central bank / dept of finance will bail out the banks at our cost, they won't bail out the credit unions, by limiting deposits to 100k then they can say no one lost money, but your CU will be gone just like with Newbridge where it was transferred to ptsb, the biggest basket case of the remaining Irish Banks

    they bailed out (at least) 2 afair


  • #8
    newacc2015
    Closed Accounts Posts: 2,379 ✭✭✭newacc2015


    Riverireland wrote: »
    This makes absolutely no sense to me. Maybe someone can enlighten me as to the thought process behind it?

    CUs are great as they provide credit to people who traditionally were not desirable for banks to lend to. But a lot of them are being run by people are not the most competent to put it nicely. There were CUs were the directors were giving loans to themselves for property in Eastern Europe. CUs were giving loans to property developers, which is not what a CU is set to do

    http://www.independent.ie/opinion/analysis/seamus-coffey-more-credit-union-failures-are-inevitable-and-well-pay-price-29745846.html

    If you study banking. Risk is a huge topic. The way CUs are in Ireland means, they generally focus their lending on a small area. If that area has an issue like a large factory closing. The CU will have a large number of defaulting loans. CUs arent diversified and cant really borrow on the money markets like AIB or BOI.

    In most EU countries like Spain. The biggest issue with their banking sector was that Co-op banks and CU were unregulated, as it was basically political undesirable. Should a financial institution be regulated? Absolutely but regulating a CU is seen as politically undesirable as it is seen an attack on lending to low income individuals. Everything in the media on this new rule is that it is an attack on poor. But if we are serious about preventing another banking crisis in Ireland. It is necessary.

    I personally cant understand why CU rates are so high here compared to CUs in the US. A car loan from a CU in the US can be as low as 1.4%. Yet in Ireland it can be up to 8%. It is probably due to the fact Irish CUs are so small and lack economies of scale.


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