BALANCE SHEET & CAPITAL

Following our recent webinar event: The Regulatory Reserve Ratio for Credit Unions: Time for Change? we have added the presentation of the paper, the feedback from the breakout rooms and the video presentation which you can access below.

This workstream will consider the impact of the ongoing savings growth on Credit Unions and their Balance Sheet. The workstream will review changes to the current funding mechanism for savings, substitute sources of capital for Credit Unions and the alternative regulatory capital arrangements.

Building on the materials already published by the CEO Forum about asset growth in credit unions, this paper contends that capital requirements on Irish credit unions are excessive and unjustified relative to the risk profile of the Irish credit union balance sheet, international credit union requirements and the requirements on competing financial institutions.

The intended outcome of the working group is for the CEO forum to publish a discussion paper covering the following discreet themes:

1. Analyse strategies to manage the growth in savings for Credit Unions
2. Explore an alternative to basic share or saving accounts
3. Consider new sources of capital for Credit Unions
4. Consider alternative regulatory capital regimes for Credit Unions

The working paper will be used as a catalyst to generate business model or regulatory change, as appropriate.

A presentation was developed to give an overview of the strategies available to manage the growth in savings for Irish Credit Unions. The presentation explains the current Irish Credit Union balance sheet and looks at the recent history of growth.

It concludes that savings growth has outstripped lending growth and outlines how this is impacting on the Irish CU Model currently and looking into the future. The presentation explores how small savers are driving this liability growth and overfunding the CU business model to such an extent that it threatens long-term viability.

This overview of the sector provides the backdrop for understanding why Irish Credit Unions are attempting to limit the aggregate growth in savings. The presentation points to more effective solutions among those increasing lending and hints at structural alternatives to capital structures, including Risk-Based reserves but also alternative capital sources.

The presentation goes on to provide a high-level overview of the options available to decision-makers to reduce savings growth. As well as setting out the possibilities, it reviews the effectiveness of each strategy on dampening savings growth and longer-term effects. The presentation is supported by the document.