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Credit union fears growing over billions in Irish banks

THE Central Bank is set to issue fresh investment guidelines to credit unions in a bid to allay growing concerns about the billions of credit union cash tied up in Ireland's weakened banks.

Irish League of Credit Unions boss Kieron Brennan, who represents 400 credit unions, said the level of cash in Irish banks had become a "huge question" for his members.

Credit unions hold the "bulk" of their €3.2bn in excess funds in Irish banks, Mr Brennan said, citing January 2009 recommendations from the Registrar of Credit Unions, which sits within the Central Bank.

At the time, the registrar said credit unions should give "priority" to holding their excess cash in short-term deposit accounts of banks covered by a statutory guarantee.

"We've asked does he [the registrar] wish to alter his advice to the credit unions, given where we are at the moment in the financial crisis?" said Mr Brennan.

"He has not seen fit to reverse it, so we can only assume that the registrar has taken a view that it's unlikely [that the Government will default on the guarantee]."

The issue was last raised at a meeting in mid-December 2010.


Asked whether credit unions were comfortable keeping so much cash in the Irish banking system, Mr Brennan replied: "You're asking me how comfortable I am with the Irish government guarantee."

"That's a huge question, for all our members as well."

He added that some credit unions were "probably in breach" of the guidelines and had "put their funds elsewhere" as a result of advice they had taken.

Some credit unions are also concerned about keeping their cash in government-guaranteed banks which no longer have an A rating, since the registrar's full set of guidelines from 2006 says deposits should only be put in institutions with A ratings.

A spokeswoman for the Central Bank last night confirmed that credit unions are permitted to keep cash in institutions rated below A if the cash was covered by a government guarantee.

The Credit Union Registrar is expected to confirm this position to credit unions in a notice over the coming weeks.

Mr Brennan acknowledged that credit unions were not forced to keep cash in Irish-guaranteed banks, but said the recent contraction of the Irish banking market made it more difficult to find other homes for the money.

"Irish banks still remain the most practical option for placing surplus funds," he said.

He added that credit unions were restricted from putting all their cash into the remaining UK-guaranteed banks because of guidelines saying they should hold a maximum of 25pc of their cash in any one institution.

Irish Independent