Levy credit unions have to pay for rainy day fund reduced

An annual levy credit unions are required to pay, into what is effectively a rainy day fund, has been reduced on account of growth in the value of assets held by those institutions.

The rate of the so-called stabilisation levy has been reduced by the Minister for Finance, Paschal Donohoe, to 0.017 per cent of assets from 0.022 per cent.

Under a regulation which was signed into law in 2012, credit unions are required to pay the levy to build up the stabilisation fund so that, in times of need, the sector will be protected.

The fund, which was ultimately created in 2014, is available to all credit unions with a reserve ratio of at least 7.5 per cent of total assets and less than 10 per cent. The credit union must be viable in the opinion of the Central Bank of Ireland. Stabilisation support will be provided to address short-term problems at those credit unions that are viable but undercapitalised.

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And while the contribution required by each credit union has fallen, the original target of creating a €30 million fund in 10 years is still on track.

Mandatory contributions

Between October of this year and the end of September next year, the levy, which predates the failure of credit unions such as those in Rush and Newbridge, is expected to raise about €3 million.

“The introduction of the stabilisation scheme was one of the recommendations of the Commission on Credit Unions which also recommended that the scheme be funded by mandatory contributions from credit unions,” Mr Donohoe said.

“This fund will act as an important stabilisation mechanism in times of need and it’s passing into law is to be welcomed as part of the future security of the credit union movement.”

The contribution required by credit unions will again be reviewed next year before the introduction of the 2021 levy.