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Budget leaks: Government to inject €250 million into credit unions

The recapitalisation figure in the leaked budget documents is significantly less than the €1 billion previously suggested by Michael Noonan – but there will be more money available in 2012 if the credit unions need it.

THE GOVERNMENT IS planning to recapitalise Irish credit unions by €250 million, according to the confidential leaked draft budget documents seen by TheJournal.ie.

The figure is less than had been expected – last month the Minister for Finance said that the government was willing to recapitalise the credit unions by up to €1 billion.

However the report does say that more funding will be available in 2012 if required, “up at an amount to be agreed to with our external partners”.

The draft document says that the government plans to recoup the money from the credit unions via a levy which it is planning to introduce through new legislation.

Credit unions have been hit by a large increase in bad debts as people struggle to repay the loans taken out with the institution.

The draft document prepared by the Irish government and circulated to all EU finance ministers as part of Ireland’s bailout programme says that the government is acting to “underpin the solvency and viability of the credit union sector, while protecting the public purse”.

“As an immediate step, we will proceed with actions to deal with weaknesses in the most troubled institutions while protecting depositors to ensure financial stability,” the document entitled Memorandum of Economic and Financial Policies says.

The commitment to the “initial resolution funding of €250 million” will be made from the exchequer in the fourth quarter of 2011.

Further funding, “up to an amount to be agreed to with our external partners” will be available for credit unions in 2012 if they need it to for resolution or stabilisation.

The levy to recoup the money is contained in the Central Bank and Credit Institutions (Resolution)(No.2) Act which was passed by the Oireachtas in October 2011.

The Department of Finance has said that the document is a “draft” and that “no decisions have been taken in relation to the forthcoming Budget”.

An independent report in October found that 27 of the country’s credit unions were seriously undercapitalised.

Michael Noonan told the Seanad earlier this year that the money for the credit unions would come from funds left over after the banks had been recapitalised. The recapitalisation of the banks, he said, had cost less than expected and the Government had the resources to spend what was left over on credit unions.

Earlier this year one of the largest insurers of credit unions in Ireland warned that 80 credit unions could face closure due to losses incurred from unpaid loans.

At the time UCD banking professor Ray Kinsella said of the proposed recapitalisation: “This assistance is not a bailout in an accepted sense of the world – it’s a bail-in by society”.

Read more: REVEALED: Government’s leaked plans for Ireland’s austerity Budgets >

Read more: Social welfare to bear burden of Budget cuts, Government tells EU >

Read more: Budget leaks: State asset sell-off may not yield money for job creation >

Read more: Budget leaks: the hypermarket could be on its way to Ireland >

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    Mute Adam Magari
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    Nov 18th 2011, 3:55 PM

    A question for the experts. I have never dealt with a credit union but I have always been under the impression that credit unions loans were insured. I presume the counterparty is either a bank or insurance company, rather than the credit union itself? If so, why is the government stepping I with taxpayer cash?

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    Mute Sean O'Keeffe
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    Nov 18th 2011, 9:55 PM

    Because the country is run by idiots, who won’t stop interferring in the economy until it is entirely nationalised (or most probably bust) and all our banks end up like FAS.

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    Mute Michael Byrne
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    Nov 19th 2011, 9:40 AM

    The vast majority of CU’s insure the loans for the benefit of the member. Should a borrowing member die then the loan is cleared. So in theory all the loans which have been written off will be recovered, but this could take 40 years as CU’s wait for people to die in order to claim the insurance.

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    Mute Eire
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    Nov 18th 2011, 2:44 PM

    So some of us can all head to Poland for the Euro’s Championship Finals in June 2012 thanks to the League of Credit Unions this joke of a Government & us mugs the Tax Payers

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    Mute Martin Mc Cormack
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    Nov 18th 2011, 8:22 PM

    they have issues with bad debts, they joined the property splurge, and also bad investments.
    expect to see an exodus of volunteers from the movement as the financial regulator is killing them with regulation.

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    Mute Michael Byrne
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    Nov 19th 2011, 9:53 AM

    CU’s have issues with bad debts because unemployment has gone from 5% to 15%. A minority (27 CU’s per commission report) ignored the CU ethos and have got themselves into difficulty. There has been numourous instances where three knee-jerk reaction of the regulator has been to much but I think the regulator has learned alot and the regulationis becoming more fit for purpose. CU’s have money to lend and improved regulation will ensure that this remains the case. They’ll be plenty of holiday loans for Poland

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    Mute Martin Mc Cormack
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    Nov 19th 2011, 7:03 PM

    The credit union movement is being morphed into a bank, by regulation. they will lose any local control. They will not be of any great benifit to the people that really need them, the Big commercial ones such ESB, eircom garda etc have nothing in common with CUs in working class areas, in fact they take from them in that in a lot of people that work in these organisations find it more beneficial to be a member at work rather than the community one. My family have been involved in the movement for years. I know of 15 or volunteers that have packed it in in the last year. At some point in the future some group of people will have to come together to restart a proper savings and loan scheme rooted in their own local area, but of course the regulator will be the big obstacle. In the meantime all the best with your bank.

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    Mute Michael Byrne
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    Nov 19th 2011, 8:42 PM

    Martin, I agree with every thing you say. Thankfully our credit union is still firmly rooted in the community. Our board have been extremly vocal with the dept of finance, regulator and the ILCU to try an retain the ethos. Big credit unions that morph into banks are not what we need. From what I can figure, the credit unions in trouble are the big ones that forgot what they were set up for. Do we want more of these? A two tier system is likely to evolve where tier 2 will be ‘savings and loans’ and tier 1 will be banks.

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    Mute Martin Mc Cormack
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    Nov 19th 2011, 12:56 PM

    Micheal, I assume you are a C.U. spokesperson if so do you think the voluntary ethos will continue, or is the future in banking.

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    Mute Michael Byrne
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    Nov 19th 2011, 6:15 PM

    Not a spokesperson, but have been a cu manager for the past nine months. My professional background is accountancy and growing up I was always involved with local groups and sporting organisations, so I like to believe that I bring a good mixture to the cu. I’m beginning to believe that the volunteer ethos will be protected which I think is very important. The boards of the future will be subject to more oversight and training which may make it more difficult to attract volunteers. As a manager I’ve implemented a lot of change in the last nine months. For me I think it is important that there is a strong board overseeing my implementation of policies and standards.

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