Credit unions complain of ‘double standards’ in Covid-19 response

The Irish League of Credit Unions (ILCU) has accused the sector’s regulator of double standards after it denied its request for leeway on regulation due to the Covid-19 crisis, while allowing banks some flexibility.

The regulator has refused a request from ILCU for a reduction in the capital buffers that credit unions must hold.

In a letter to the regulator last month, ILCU had also asked for a 12-month deferral on €22 million worth of State levies that its 226 member unions are due to pay, including one to cover the Central Bank's costs of regulating the sector. In a response letter on Thursday, the Central Bank also refused that request.

Ed Farrell, the chief executive of ILCU, said the regulator, Patrick Casey, registrar of credit unions at the Central Bank, was "not standing with credit unions at a time when credit unions are standing with the communities they serve".

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"It is disappointing that the regulator is maintaining the status quo in the changed circumstances of Covid-19," said Mr Farrell. " ... There is a double standard here when we look at the relief measures afforded to banks."

In ILCU's original letter from March 26th seeking leeway, Mr Farrell went over Mr Casey's head and wrote directly to Gabriel Makhlouf, the governor.

Mr Farrell had asked that the requirement for credit unions to hold a capital buffer of 10 per cent of their assets be reduced to 8 per cent, where it stood before the financial crisis. He said banks had in March received leeway on their capital buffers for Covid-19, freeing up an extra €1 billion to support the economy. He sought a similar move for credit unions.

Request denied

Mr Makhlouf did not respond directly to ILCU’s letter, but instead asked Mr Casey to write to Mr Farrell, which he did on Thursday, denying the request to move back to 8 per cent.

The regulator wrote that most credit unions had reserves far beyond the requirement and that the average in the sector was 16 per cent. He denied that the 10 per cent buffer would prevent credit unions from lending.

“Any reduction would have a negative impact on the financial resilience of the sector and on credit union members, in terms of weakening the protection of their funds,” wrote Mr Casey.

On the levies, ILCU outlined how the €22 million covers various deposit guarantee and industry stabilisation funds. About €1.5 million of the total goes towards the regulator’s costs. That figure is due to accelerate sharply over the next two years, beginning this year, as the sector is required to move from covering 9 per cent of the regulator’s costs to 50 per cent by 2022.

In addition to a 12-month deferral on the €22 million levies, Mr Farrell had also sought a commitment to review the levies after the year was up.

“We are not in a position to suspend all levy charges imposed on credit unions for the next 12 months, nor can we give a commitment for a subsequent review,” Mr Casey wrote this week.

“The Central Bank would stress the importance of maintaining safety nets to support credit unions and their members at times of financial distress.”