Business Irish

Saturday 25 November 2017

Credit unions turn down support from ECB

Laura Noonan

Laura Noonan

THE Irish League of Credit Unions has insisted its members have no plans to tap the European Central Bank for financial support -- even though new rules explicitly empower the Central Bank to accept their loans as collateral.

The ECB's governing council last week told national central banks that they were temporarily "allowed" to lend money to institutions that used "loans" as collateral rather than pledging traditionally accepted assets like high-grade bonds.

The move explicitly opens up the ECB's unlimited supply of cheap cash to institutions such as credit unions, which would have extensive loan assets but would have limited supplies of more traditional collateral like bonds.

The Irish Independent understands that some national central banks, including the Central Bank of Ireland (CBI), were already accepting loans as collateral for liquidity operations but that last week's comments cement their eligibility.

The CBI declined to comment on liquidity dealings with credit unions, but the Irish Independent understands that credit unions are among the "eligible institutions" that can draw support from the ECB.

A spokeswoman for the Irish League of Credit Unions, which represents almost 500 individual unions, said the industry had about €3.8bn of reserves for liquidity purposes "significantly in excess of the (credit union) Registrar's guidelines".

"This liquidity buffer means that the vast majority of credit unions have access to their own sources of funds and would not require liquidity assistance," she added. "We are not aware of any credit unions applying directly for liquidity assistance to the Central Bank."

Credit unions avoided the worst excesses of the Celtic Tiger and marked themselves out as the only domestic lenders not to need a bailout for the first three years of the crisis.

In early October, it emerged that as much as €1bn of taxpayer cash would have to be pumped into the country's credit unions amid spiralling arrears levels. At the time, the Central Bank believed up to 79 credit unions were at risk of failure, with as much as €1.7bn worth of loan write-downs expected across the sector. The bailout €1bn is expected to be ultimately repaid by credit unions.

The ECB's decision to empower central banks to accept loans as collateral was part of a major push by Frankfurt to flood banks with liquidity and remove any lingering doubts about their ability to access ample amounts of cheap cash.

Irish Independent

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