Tuesday 16 January 2018

Central Bank perpetuating myth of little man's bank

'The people who run credit unions are not happy with the Central Bank, and for good reason'
'The people who run credit unions are not happy with the Central Bank, and for good reason'
Charlie Weston

Charlie Weston

On the face of it, restricting the amount of money consumers can save in a credit union is no big deal. The Central Bank is proposing new regulations that will limit to €100,000 the amount of savings any individual can have in a credit union.

This is the same sum that is guaranteed under the State deposit guarantee.

The Central Bank, and specifically the registrar of credit unions Anne Marie McKiernan, feels that it is acting to protect member savings by imposing the savings limit.

But the people who run credit unions are not happy with the Central Bank, and for good reason.

Credit union people feel that such a savings limit will put them at a major disadvantage to banks. It will also perpetuate a suspicion that credit unions are amateur organisations - the little man's bank - and not to be trusted with large sums of money.

If you have serious money from a redundancy or an inheritance, put it in the bank and don't go near the volunteer-run, little credit union, is the thrust of that argument.

The savings restriction proposal is part of a 2012 piece of legislation that the Central Bank has to implement. It recently conducted a submission process on this, known as CP88.

Credit unions believe the savings limit proposed for them is unnecessary and potentially a breach of competition law.

And it does seem to this observer to be particularly patronising.

After all, it was not credit unions that came close to bankrupting the country, requiring a €64bn bailout.

Just 1pc of credit unions have required State funding support since the financial crisis began.

That is fewer than the number of banks that needed State support, as Central Bank Governor Patrick Honohan is no doubt aware.

The big fear is that the savings limit will damage confidence in credit unions, with new members shunning the movement in favour of banks.

It is not unrealistic for someone who has been a member of a credit union for ages to have built up €100,000, especially if they have a good savings history.

There is a risk that someone who builds up a lot of savings - or gets a lump-sum after being made redundant - will withdraw all their funds from their credit union.

The irony is that the Central Bank forces credit unions with spare funds to put that money into banks, where they get no guarantee.

That amounts to a handy €10bn for the banks.

Must so much of what happens in this country be about rescuing profligate banks at a massive cost to everyone else?

Sunday Indo Business

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