Cantillon: One size no longer a good fit for shrinking credit unions

The Irish credit union movement has avoided – to the surprise of many prophets of doom – the spectacular implosion that befell the banking sector during the financial crisis.

But a one-size-fits-all approach to regulating the sector and strict lending limits may be putting credit unions on course for a slower demise.

The Commission on Credit Unions recommended in 2012 that credit unions should be subject to a three-tiered regulatory structure, with governance differing from, say, those with less than €10 million of assets offering simple savings to those with loans above €100 million with a more complex business.

However, the Central Bank proceeded with a single catch-all approach with new regulations in January. A report out from the Credit Union Advisory Committee (CUAC) this week said many in the industry found this too onerous on smaller credit unions, whereas large ones didn't have enough flexibility to develop their business models.

While the Irish League of Credit Unions has repeatedly insisted that its “doors have remained open” even as banks pulled back from – or even out of – of the market, the CUAC report showed that lending by credit unions had shrunk by 45 per cent in the past eight years, leaving their loans-to-assets ratio at 26 per cent. This, CUAC said, is a “dismal” level that raises serious questions about the movement’s future.

A €250-million bailout fund set up during the crisis for the sector is only expected to be tapped to the tune of €20 million, as the industry engaged in wholesale restructuring and mergers in recent years.

But unless there’s a serious rethink about where this almost-60-year-old movement is headed, recent efforts may come to nought.