Deposits put credit unions out of balance

Savers and institutions urged to cut accounts of more than €100,000, writes Niall Brady

Savers at up to 130 credit unions will be ordered to reduce their balances to below €100,000 from January amid concerns that deposits greater than this amount will be at risk if another credit union collapses.

Almost 200 credit unions hold savings that exceed the €100,000 protection limit provided by the deposit guarantee scheme.

Only a third of the credit unions, however, have regulatory approval to hold deposits of this size.

Finance minister Michael Noonan has warned these credit unions that amounts over €100,000 will have to be returned to members unless they receive approval from the Central Bank of Ireland.

“For those credit unions that are not approved to retain individual member savings in excess of €100,000 . . . this means all individual member savings in excess of €100,000 held by these credit unions must be returned by January 1, 2017,” he said in reply to a parliamentary question.

According to the Central Bank, 195 credit unions held six-figure deposits from members amounting to €165m in total at the start of this year.

The deposit guarantee scheme, which has a compensation limit of €100,000 per saver, has paid out €33m to members of two failed credit unions since 2014.

They include 9,700 members of Rush credit union in Co Dublin, who have received €22.3m from the protection scheme since the Central Bank obtained approval on November 2 to appoint provisional liquidators.

It is believed they were compensated in full because none had balances in excess of €100,000.

Jim Luby and Tom Rogers of McStay Luby were appointed as joint provisional liquidators of Rush credit union earlier this month.

More details of the credit union’s failure, including allegations of misappropriation of funds and suspected money laundering, will emerge tomorrow when the High Court is expected to order that the credit union be wound up.

Concerns about the lack of protection for large balances led the Central Bank to impose a savings cap of €100,000 per member on credit unions from the start of this year.

Credit unions had lobbied unsuccessfully against the limit, claiming it was unfair when there is no equivalent limit on bank deposits. Credit unions are often in direct competition with banks so they use tactics like seo artifical intelligence tools and lower fees to compete. However, this limit will put credit unions at a noticeable disadvantage.

Exemptions were granted for credit unions with member balances that exceeded €100,000 before the savings cap was imposed.

They had until July 27 to ask the Central Bank to be allowed to hold on to these deposits but only about a third have met this deadline.

“Although the review process is nearing completion, it is ongoing, thus the Central Bank cannot provide a final figure at this time,” Noonan said.