Resolution scheme for credit unions approved

THE European Commission has approved the Government’s resolution scheme to deal with distressed credit unions until the end of June 2012 under State aid rules.

The commission said the scheme ensured a failing credit union “adequately contributes” to the cost of its wind-down.

Brussels permitted the scheme “to remedy a serious disturbance” but said it was limited in time and scope, ensured burden-sharing and contained safeguards to avoid distortion to competition.

“A resolution scheme must bring swift and efficient support when a failing entity needs to be resolved in order to safeguard financial stability and minimise economic losses,” said EU commissioner Joaquin Almunia.

The commission said the scheme ensured a competitive process will help to achieve maximum value for assets and liabilities transferred from a failing credit union to a healthy institution. If required, a resolution fund will provide a financial incentive to the acquirer, the commission said.

Distortion to competition would be minimised by ensuring a buyer was not given “undue economic advantage” from underpricing assets, it added.

The Government is committing an initial €250 million to credit unions by the end of the year. This will be recouped in the medium term from a levy on the sector.

Minister for Finance Michael Noonan has said credit unions may require €500 million-€1 billion.

Approval beyond June 2012 depends on “the evolution of the economic and regulatory environment”, the EU said.