Report on Credit Union Sector: Statements

We will now debate the report of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach entitled, Report on the Review of the Credit Union Sector with specific reference to the Credit Union Advisory Committee Review of Implementation of the Recommendations in the Commission on Credit Unions Report (June 2016). I welcome the Minister of State, Deputy D'Arcy, and call on him to address the House.

On behalf of the Minister for Finance, I welcome the committee's report. Along with the 2016 report of the Credit Union Advisory Committee, CUAC, and its forerunner, the 2012 report of the Commission on Credit Unions, it makes an important contribution to the debate on credit union reform. The committee's report was the subject of a memo to the Government and was debated during Private Members' business on 8 March 2018. Today's debate offers a further opportunity to discuss the report of the committee and reiterate the Government's support for the invaluable role of credit unions in Ireland.

In line with the Government's position, the Minister believes that credit unions have a key role to play in providing access to credit and other important services in local communities. The Government has put in place a number of measures so that credit unions can continue to provide these services to their members and to ensure the stability of the sector into the future. These measures include the establishment of the Commission on Credit Unions in 2011; the publication of the Credit Union and Co-operation with Overseas Regulators Act 2012; the establishment of the Credit Union Restructuring Board, ReBo; the availability of €500 million to support the stability of the credit union movement; the introduction of the stabilisation support scheme; the request to the CUAC to review all recommendations in the commission report; and the establishment of an implementation group to oversee implementation of the CUAC's recommendations.

The CUAC reported to the Minister for Finance in June 2016 on the implementation of the recommendations of the 2012 Commission on Credit Unions report. The CUAC found that a small number of recommendations had not been implemented and made recommendations under seven specific headings, the most relevant relating to long-term lending, consultation and engagement, and tiered regulation. The committee's report makes 27 recommendations, many of which are common to the CUAC report, such as tiered regulation, business model development, and consultation and engagement. Much of what the committee is recommending is already under way in terms of the work of the CUAC, the CUAC report implementation group, the Central Bank and the Department of Finance.

In response to its report and to address a number of additional areas expanded on by the committee, the Minister wrote to it in December 2017 to update it on the work of the implementation group. A further update was issued to the committee on 21 April.

Following publication of its report in June 2016, the CUAC continued working on enabling a coherent implementation plan to be devised for the implementation group, tasked with overseeing and monitoring the implementation of each recommendation within the CUAC's report. Each of the representative bodies was invited to nominate one person to the implementation group, which held its inaugural meeting in February 2017 and has met 12 times to date.

Tiered regulation was the subject of consultation by the Central Bank, which proposed a two-tier regulatory model, that being CP76. As stated in the 2016 CUAC report:

The Central Bank referred to submissions received in response to CP76 and indicated that it was 'unclear what form of tiered regulation the sector actually wanted', adding that the sector also indicated that the 'timing was not appropriate' for the introduction of a tiered approach, given that restructuring was in progress. The Central Bank also noted that there were 'significant burdens on the sector at the time'.

In light of the feedback received, the Central Bank did not propose to introduce a tiered regulatory framework for credit unions at that time. The implementation group continues to consider tiered regulation and hopes to make progress in the next few months. However, a lack of tiered regulation should not restrict business model development nor restrict the Central Bank from delivering proportionate supervision.

A Programme for a Partnership Government recognises the potential role that credit unions can play in housing finance. To that end, the revised regulations for credit unions, which commenced on 1 March, clarify the scope and the manner in which credit unions can support the development of social housing. The regulations, which introduce a practical form of tiering, make provision for investment in tier 3 approved housing bodies, AHBs, by credit unions with greater than €100 million in total assets through a regulated vehicle.

The implementation group has held discussions on business model development and is finalising a paper outlining some of the key areas that are being, and could be, developed further by credit unions and representative bodies without changes to regulations. The CUAC is also focusing on this matter during 2018 and recently met a number of credit unions to discuss their business models and how they expected to grow their businesses.

In addressing the business model agenda, the Central Bank has announced the establishment of a new forum to engage directly with credit union CEOs. The forum will give those progressive credit unions with the capability and desire to undertake business model transformation a mechanism to avail of practical regulatory support when seeking to address their commercial challenges.

On 3 November 2017, the Minister provided the joint committee with two documents prepared by the implementation group and submitted by the latter to the Central Bank. The first document relates to section 35 of the Credit Union Act 1997, as amended, which provides for the making of loans by credit unions. The paper details a range of proposals for consideration in the Central Bank review of section 35 that could provide for a material increase in long-term lending for those credit unions that would have the capability to do so. The Central Bank has commenced a review of credit union lending limits and acknowledged that the matter of the limits has been highlighted in various fora as an area of regulatory review, including through the implementation group. To inform this review, a questionnaire issued to all credit unions on 11 April 2018.

The Central Bank also proposes issuing a formal consultation paper later in the year. This paper sets out key principles for consideration by the Central Bank that may assist in progressing the CUAC recommendation that service-level agreements be introduced. The introduction of such an agreement is a matter for the Central Bank, but the CUAC and the implementation group have strongly recommended its introduction. The Minister wrote to the Central Bank Governor to outline his support for these matters being progressed in early 2018 and his officials also met the Central Bank in February to progress both papers. The Minister has extended the term of the implementation group to the end of this year to allow sufficient time for the completion of the group's current work programme. The progress I have outlined provides a solid platform from which to proceed with future reforms.

The Government recognises the important role of credit unions as a volunteer co-operative movement in Ireland managing €16.9 billion of assets and a loan book of €4.5 billion at December 2017. A Programme for a Partnership Government commits to the development of a strategy for growth and development for the credit union sector. The Government recognises that the sector requires further support to help overcome the significant challenges it faces and has a clear policy to support the strategic growth and development of credit unions. The Minister is committed to the implementation of all the recommendations of the CUAC report in a cohesive manner. He looks forward to continuing to work together with all stakeholders, including the committee, to support credit unions as they progress and develop.

I welcome the Minister of State and thank him for his attendance and his opening statement. We will all be singing from the same hymn sheet where many of his comments are concerned. Fianna Fáil welcomes the report, having pushed for its publication, and everyone shares the view that credit unions are a vital part of communities across Ireland. There is a connection to a credit union in every small and large town and parish.

It is fair to say that there has been a great deal of change and consolidation in the sector. In the past month or so, I attended the 50th anniversary celebration of the Stillorgan credit union, which recently merged with the Donnybrook credit union to become the South Dublin Credit Union. They were both celebrating 50 years. It was a great evening.

It shows how far they have come and how well they have done in the context of everything that happened in the banking and finance sector. Many credit unions probably had money on deposit in places such as Anglo Irish Bank. If it had been let fail totally, the credit union movement could have suffered. The larger banks could have learned from its performance and prudence and how it had behaved during the crisis. It important that I acknowledge and include the fact that the confidence and supply agreement states a strategy for the growth and development of the credit union sector needs to be established. That was stitched in by Fianna Fáil in its discussions with Fine Gael on the formation of the Government.

It is also important to point out that credit unions have about €8 billion of what they identify as surplus funds. These are funds available to invest in small and medium enterprises, SMEs and some of them - this gives hope to a lot of people - could be put into affordable housing projects. I refer to those that would be sustainable, provide a return for credit unions and equally provide valuable social and affordable housing. The Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach - almost of all us of here, certainly me as Vice Chairman to Deputy John McGuinness, Senators Rose Conway-Walsh and Kieran O'Donnell and the Minister of State, Deputy Michael D'Arcy, until his recent promotion, were members of the committee - deemed it to be the right time, after the financial crisis, to look at the status of credit unions. I refer to how they had weathered the storm and reviewing the impact of the measures put in place.

We need urgent action by the Government, the Department and the Central Bank. We also need tiered regulation, to which the Minister of State referred. We need the Government to show some leadership on the social and affordable housing model. I understand the Department is a reluctant to do so and perhaps it is fair to say it is reluctant to do anything that would damage the pillar banks. That is possibly because it has shareholdings in them but equally because it is trying to make sure they will survive. Amidst a housing crisis, however, it is incredible that the Government seems to be allowing this opportunity to slide through its hands.

The Minister of State has outlined much of what is in contained in the report. It is important, however, to outline some of the main recommendations, including the need for a timely review of the framework and regulatory requirement that tiered regulation be implemented. At the celebration of the Stillorgan and Donnybrook Credit Union, now South Dublin Credit Union, proportionate regulation was a topic of discussion - that the same standards did not necessarily have to apply to the smallest as to the largest and that the regulations applied sometimes were a little excessive and onerous. We have to remember that many of the people involved in the credit union movement are volunteers. They are doing it on a part-time basis and do a very professional job, but it is not all they are doing. It important to allow the sector to have proportionate balanced regulation that would not make it difficult for it to operate. I am not for one second advocating light-touch regulation, to use that famous phase. There is a balance to be struck. Most of the people involved with the credit union movement get the point I am making and I am sure the Minister of State does also.

Another recommendation made after the publication of the report in 2016 was that the implementation group meet regularly to oversee implementation of the seven key recommendations. In identifying potential investment streams to enable the credit union movement to diversify serious consideration should be given to allowing the credit union movement to utilise assets in approved housing bodies and in the process alleviate the housing crisis. Where applications were being made by the credit union sector concerning new business proposals, it was recommended that the Department and the registrar provide clear and explicit feedback on the merits of the applications and, crucially, identify enhancements that would support them. It was also recommended that greater emphasis be placed on the important role of the credit union sector in ensuring the financial inclusion of citizens.

I will mention a couple of points that the Irish League of Credit Unions, ILCU, communicated to all of us. It is important that they be included in the debate. They are people who are on the front line every day, experiencing the operation of the credit union movement, of which many of us are members. The ILCU emphasises the legislative framework and the regulatory requirement for tiered regulation to ensure a proportionate application of the regulations. I refer also to the CUAC recommendation for a full review of section 35 lending and concentration limits. It will allow credit unions to develop and grow beyond the current permitted limits and is endorsed by the committee. It was also pointed out that a new appeals mechanism should be introduced to allow credit unions to appeal regulatory decisions made by the Central Bank to an independent body. The report reflects the ILCU's view that the regulator reserve ratio is a crude and blunt instrument that does not take account of the risk faced by credit unions.

On investments, the committee recommended that all parties participate constructively in the consultation paper on the credit union investment framework, CP 109, while expressing concerns that some of the proposals would limit the potential investment yields for credit unions. It also recommended that the credit union movement be empowered to contribute to alleviating the housing crisis and that the liquidity rules were overly focusing on cash and that consideration be given to investment in bonds as liquid assets. On levies, it was recommended that those imposed on the credit union sector be urgently reviewed transparently to ensure there was a clear rationale and legal basis for any levy imposed. The common bond was also emphasised. I am sure people are aware of it. The committee recognised the common bond structure as a unique and distinct characteristic of credit unions. For that reason, it supported retention of the common bond, as any dilution of that feature would permanently damage the credit union movement.

It is important to acknowledge, as the Minister of State has, that the credit movement is a fantastic asset. The Minister of State has acknowledged that. Like any institution that involves public funds or people putting their money into it, it needs appropriate and proportionate regulation. There has been much consolidation in the sector. The credit union movement has served the country well and it is ready and willing to serve it well into the future. It has ambitious targets for growth and to become involved in sectors in a measured, balanced and reasonable way to meet needs in society. A lot of effort needs to be put in by departmental officials, the Minister of State and all of us to find where the blockages are and discover what the resistance is, if there is any. Let us try to work together to deliver houses.

I refer to using funds for people who are homeless and living in emergency accommodation. They are not in a position to buy houses at the prices at which they are being sold, but they are looking for affordable houses. Perhaps there is scope to provide not just social houses but also affordable houses, perhaps on a shared ownership or equity stake bais or whatever it happens to be. It is important to acknowledge that the report states credit unions have become a part of the fabric of the financial sector. There are 27 recommendations and I am not going to go through all of them. We all know what they are. I have only eight minutes in which to contribute, but I could talk for hours about this issue. It is a good report. Well done to the committee and those involved in the preparation of the report. I look forward to its recommendations being implemented and the credit union movement thriving into the future.

I doubt if I will need eight minutes, as my colleague has covered most of the issues. I was, however, involved on the board of a credit union. In recent years there seems to have been an effort to force amalgamations, downsize the number of credit unions and almost restrict them to the point where they cannot operate. The report provides a way forward and is something at which we need to look. The Minister of State will know from his own local area that credit unions are the heart and soul of communities. Many people in their first job took out their loan for a car through their credit union. They got their start through their credit union. However, credit unions have moved on. Some of them are still small local entities that look after the needs of local people, but some of them are capable of doing an awful lot more. It is about providing them with the wherewithal to expand.

I am thinking, in particular, of the credit unions of the Teachers' Union of Ireland, TUI, in which I was involved, the Association of Secondary School Teachers of Ireland, ASTI, the Irish Nurses and Midwives Organisation, INMO, and the Irish National Teachers' Organisation, INTO. All of these credit unions deal with professionals employed within a sector with guaranteed public jobs. There is no reason they should not be involved in mortgage provision, for example. That is something we need to look into. We need to allow these credit unions to expand to allow young professionals to get mortgages. The Minister of State knows this because he has his hand on the pulse and a teachers' conference wa held in Wexford this year. Young teachers, nurses and gardaí are not able to get mortgages based on their salary. What my colleague, Senator Gerry Horkan, spoke about - shared ownership over a period of time - is something the credit unions could do. They could provide for direct deductions at source. We need to look at and listen to those credit unions that are now highly professionalised.

A lot of work has been done by the Department of Finance and the Central Bank to bring professionalism to the credit union movement. We now need to allow it to grow. I am particularly interested in the credit union movement investing in social housing, where possible. I am also interested in the micro-finance issue because indigenous industry is what will keep this country going. While it is great to have Google, eBay and so on, the small start-up by one person, which expands to become an employer of ten or 15 people is also important, because ten people working in 50 companies is a lot of people working. The SME sector can match any multinational. Micro-finance will be important in this regard.

I do not propose to go through the recommendations as they have been already outlined by my colleague, Senator Horkan. Coming from a rural community the Minister of State, Deputy D'Arcy, will be aware of the impact a good credit union can have on its community. It can help a community to grow and, thus, it will also grow. I am not suggesting that we should take the foot off the pedal with respect to keeping an eye on what is going on because that is vital if the credit unions are not to get into trouble. The credit union movement came out of the economic crash pretty good by comparison with the high-street banks. There were a couple of disaster stories but overall credit unions provided the stability that people needed. The fact that this is all done on the backs of people volunteering needs to encouraged and assisted in every way possible. I believe that the Minister of State is dedicated and committed to this sector.

I welcome the Minister of State, Deputy D'Arcy, to the House. He is a good friend to the Seanad and he is doing a good job as a Minister of State. Credit unions are hugely important at rural, urban and city levels. As an accountant, I had my own practice for many years. I had a range of clients, many of whom, having been refused credit facilities by the local banks, were able to get a loan from their local credit union, the drafts for which were lodged in the mainstream banks. Many of those businesses are thriving today. We owe a huge debt of gratitude to the credit union movement and those who volunteer in this sector for the service they have provided. During difficult times in the 1990s credit unions kept alive a lot of what I would regard to be viable businesses.

While some of the credit unions got into difficulty, many did not. Many were run in a very prudent manner. We currently have a mainstream banking system, which is necessary, but many of the big banks have left the market. We now have two very large banks and a third bank, Permanent TSB, which is not really a business bank. Previously we had a multitude of banks providing competition in the market, many of which took reckless risks, but nevertheless there was competition in the market. There is a role for the credit union movement in filling this gap, including by way of investment in social housing but we need to find a structure to allow that to happen. The credit union movement accepts deposits from local people and it uses those deposits to lend to other local people. It is a very simple and straightforward model but it also has to make a return. For many years the credit union movement would have put its money on deposit but because the return on deposits was so low some credit unions began investing in perpetual bonds at high rates of interest and this caused problems. We have to find a sustainable model for the credit union sector. It needs to evolve and become a lending mechanism for the small business sector. Also, credit unions must be locally based. In my experience, people will always repay their credit union because they invariably know who is managing it and often their families will have been involved in creating it and this builds loyalty. This loyalty was evident right across the country in respect of the credit unions that got into trouble. The people who had money on deposit with them were extraordinarily loyal to them. We cannot lose that but we have to balance it with prudent management and prudent regulation, but regulation which does not strangle the sector.

There has been an amalgamation of some credit unions and there may be further amalgamations. Many of these amalgamations have been sensible. Ultimately, the purpose of the credit union is to provide a service to the people living in its area. We cannot lose this ethos. When a gap emerged between the banks and the credit union sector, the credit unions sought to fill that gap and they began providing loans which kept businesses and local economies going. We may need to consider putting this service on a more formal footing and to set limits in this regard. We cannot allow credit unions to become banks. That is not the purpose for which they were set up. They were set up to serve local need but consideration should be given to their providing funding towards investment in housing projects. There is room for this investment. It would be a secure investment for the people who have deposits in the credit union movement.

Another issue we need to examine, which comes up regularly, is the limits around the amount of money people can borrow and the borrowing limits of individual credit unions. The current limits on short-term and long-term lending need to be reviewed. The credit unions that got into difficulty had invested in property, which was outside their normal area. They got involved in development and in certain cases this got out of control and that is what caused the problem. Their core business was not at issue. I have dealt with credit unions for many years and I am a huge advocate for them. The credit union is now the only financial institution outside of the post office that has a network nationally. Every parish in Ireland has a credit union. Some of them may have amalgamated but they are still providing a service. We cannot lose sight of this. The question is whether we can build on this sector in terms of allowing it to make large scale investments and thus contribute in a social way to Ireland while at the same time making a return for its members. We need to find a way of expanding its remit into the SME sector. I am nervous about it getting involved in the mortgage market but the idea should be looked at. For me, it is not the core purpose of the credit union sector.

I am glad this review took place. The committee's work in regard to this sector is a work in progress. I know that the Minister of State has a personal interest in this area. I salute the credit union movement. I had a client who even though she had a viable business could not get money from a main bank. Every week she would go to the credit union, get a draft for £1,000 and then lodge it to her account in the local bank. We cannot lose this ethos.

Prudence is hugely important. The credit union movement and its members have come through pain, and what we have to do is ensure we retain the ethos and network, expand the range of services in a prudent way and allow credit unions to make a contribution towards housing while not putting their members' deposits at risk in any way.

I welcome the Minister of State to the Seanad to discuss the report on the credit union movement. I welcome the publication of the report and the significant amendments that were submitted by various parties.

As did other speakers, I commend the work of all of the volunteers and people connected to credit unions, and certainly to all of the credit unions I know, which form the very heart of many communities. At a time when bank branches are closing and being centralised and digitised, the credit union is becoming even more important in all of our communities. This is evident throughout the life-cycle, whether it be a student applying for a loan or an elderly person applying for bridging finance while waiting for a housing aid for older people grant where the person has been refused by the banks. We all agree that credit unions are hugely important and becoming ever more important in our communities.

The major problem is the disconnect between the Government's rhetoric and actual action on the credit union sector. In October 2011, a statement was made in the Seanad that there was a potential black hole of €1 billion in the credit union sector. That prediction has since proved to be entirely inaccurate. It was indicative of the attitude of the State and the Government to the credit union sector at the time.

Credit unions continue to serve communities all over Ireland with member-focused products. The report highlights the negative impact the low loan to asset ratios have on credit unions. The section 35 limitations need to be reviewed. This has been called for by the report and by the advisory committee. When will that review start and when will the Minister of State report? These limits are impacting on the ability of credit unions to lend money to their members.

The promise of tiered regulation must be acted upon immediately. Tiered regulation was meant to be about the proportionate application of regulations, taking into account the individuality and diversity of credit unions. Instead we see blanket regulation imposed by the Central Bank regardless of size. This reflects the poor relationship between the Central Bank and credit unions. There should be a third party that could hear appeals against the Central Bank's system, which could also facilitate a form of reconciliation between the two.

There should be movement to empower credit unions to invest in the housing crisis. It is unacceptable that seven years in, the Government has made no movement on this. My party has made very detailed submissions explaining exactly how this could be done. It could be facilitated by the creation of a specific fund, from which tier 3 approved housing bodies could apply on a rolling basis for loan assistance for the purchase, renovation or building of social housing. Funding could be approved on a 100% or perhaps a 70% basis, with the Department of Finance providing 30% of the funding through the already established approved housing body funding mechanisms. Loans could be repaid via a 30-year availability agreement between the approved housing body and the local authority housing department. The agreement would cover the repayment of the loan and a small premium to cover management and maintenance costs. In the case of larger approved housing bodies, if the appropriate finance was made available, an additional 2,000 to 4,000 social housing units could be built.

Sinn Féin supports the proposal made by the Irish League of Credit Unions to allow for the provision of €347 million annually in approved housing body loans, to be built up incrementally to €1 billion over six years. The composition of the fund in terms of governance and board membership could be decided following discussions between the Central Bank, the Department of Housing, Planning and Local Government, the Irish Council for Social Housing, the credit unions and the approved housing body sector. I cannot understand why the Government has not yet looked seriously at this proposal.

The report also states the regulatory reserve ratio is a crude instrument that does nothing to take account of the risks faced by credit unions. The Credit Union and Co-operation with Overseas Regulators Act 2012 states the Central Bank shall have regard to the need to ensure that requirements imposed by the regulations and made by it are effective and proportionate, having regard to the nature, scale and complexity of credit unions or the category or categories of credit unions to which the regulations will apply.

Overall the report highlights the role that credit unions have played over 70 years, especially during the most recent financial crisis. There are many people who would not have had any access to credit only for their local credit union. The report does highlight some problems facing the sector, but the biggest problem is still the State. There will always be a need for regulation, but this should reflect the unique circumstances of the credit union movement. This has been promised for many years and I want to hear from the Minister of State today what concrete plans the Government has to bring this about urgently and make it a priority.

The Minister of State is very welcome to the House. I dealt with him on a number of occasions in the past when I was a Member of the bigger Chamber, but I am privileged to have him in here. About seven years ago I was lucky enough to be in Benin in west Africa. I happened to be at the first AGM of a small credit union in a village. It was all operated by women. It was giving out dividends and people were paying back loans. Most of the loans taken out by the women were for small enterprises and businesses. The reason they were establishing these little businesses was so they could afford to send their children to primary and secondary school.

The whole ethos was that a credit union was established to help local people establish a little business, but the thing about it now is that credit unions have moved away from this. They state they want to lend more, but when we look at the figures in the report there is a 26% loan to asset ratio whereas throughout Europe it is more likely to be 40% to 50%. Perhaps this is something we should encourage credit unions to examine. Credit unions can have extended loans up to ten years. These are allowable up to 15% but across the board only 2% of loans extend to more than ten years. Credit unions can have up to 40% short-term loans but they are still beneath this. There are things the credit unions themselves can do to extend and increase loans because they have the capacity to do so with regard to the regulations as set down by the Central Bank.

I was fascinated to read that many of the representative bodies stated the existing regulatory environment is not appropriate. I remember sitting in a room when Naas Credit Union was asked to amalgamate with the defunct Newbridge Credit Union. As Newbridge Credit Union did not adhere to the regulations in place at the time suddenly we had to put in place stronger regulations. We have a fierce habit in this country of the pendulum swinging left to right and we can never get it to settle somewhere in the middle. If we can get it to settle down somewhere in the middle it would be great.

I want to speak about tiered regulation, which is something other people have raised. I am a bit nervous about it. If we have tiered regulation, and there is talk about three tiers or perhaps two tiers, at the point where an institution jumps from one tier to another suddenly a huge onus is placed on that small credit union to up its game and put in place the regulatory officers required by the Central Bank. There is a cost associated with this. There has to be a margin whereby instead of having a cut-off point there should be a couple of million euro on either side to allow an opportunity for smaller credit unions. I am not in favour of tiered regulation because there is a role for the Irish League of Credit Unions in this.

Recently in Kildare there was an amalgamation of Coill Dubh and Edenderry Credit Union and Leixlip Credit Union.

The Irish League of Credit Unions wrote to the members of the credit union in Leixlip to say it could help them avoid a merger. What did it help them with? It could set up a regulatory body and smaller credit unions could feed into the process. People could be involved in regulation at an individual level and the Irish League of Credit Unions could be an umbrella body for the regulation required. The Minister might think about that.

I spoke about this issue a number of years ago in the Dáil and said that, as the umbrella body, the Irish League of Credit Unions could operate the regulation required, in particular for smaller credit unions, in order to avoid them having to amalgamate. Amalgamation means that credit unions distance themselves from the base where they started. Customers knew the person behind the counter but they then had to deal with someone different from another organisation following amalgamation.

I ask the Minister of State to consider tiered regulation. I am not happy because unless there is a margin to allow smaller credit unions time and funding it will not work. I also ask that the Irish League of Credit Unions be the umbrella body it is supposed to be. I thank the Minister of State for coming to the House.

Like all Oireachtas Members, I receive an invitation every year to engage with the Irish League of Credit Unions and listen to its key priorities. For a number of years, I have been perplexed as to why its eagerness and willingness to contribute to a house building programme in the State has not been addressed and facilitated. It wants to play a substantial role in that and has substantial assets.

The report we are debating refers to the average loans to assets ratio and the desire to increase that. The credit union movement has said this is one way to address that, in partnership with the Government, and to protect the investments and savings of its shareholders.

When we reflect on the financial crisis and the role of the banks, in particular the European Central Bank, we should note that the credit union sector is at the opposite end of the spectrum. Senator Lawlor referred to the credit union ethos being spread throughout the world, often by Irish activists and missionaries in other countries. It is something we should build on.

We have to have regulation and prudent management, and there have been small instances where that has fallen down with the movement. The recommendations in the report need to be implemented. The credit union movement has the potential to do even more good than it is already doing in local communities. It wants to play a role and has been asked to do so for a number of years. That is the key message I want to put across to the Minister of State today.

I am sure my colleagues have dealt with other issues around tiered regulation in a better way. In terms of housing, I have engaged with the credit union movement every year. I ask the Minister of State, his Department officials and colleagues in the Department of the Minister, Deputy Eoghan Murphy, to liaise and make this happen. It is good for the credit union movement and our society. I urge the Minister of State to make that happen.

I welcome the Minister to the House and the opportunity to contribute to this important debate because, to my mind, credit unions have been a bulwark for many communities in this country and the saviour of many a small business.

We are all aware that more competition is needed in the banking sector. We are also aware that the pillar banks have moved away from communities and have moved services online. They are more interested in bigger businesses rather than small local investors, savers and so on. Many people, especially older people, still value face-to-face interaction. Nobody is better placed to do that than people in the credit union movement, who are part of and know their communities. Very importantly, they know what is going on in their communities. They live locally and, therefore, are very accessible to people.

I welcome many of the report's recommendations. The Irish League of Credit Unions welcomed certain elements. We would all be happy with strong regulation, but we want a wider opportunity for credit unions to invest in their communities. Senator Lawlor mentioned that he had concerns about the implementation of the tiered regulation of credit unions. My understanding of that would be that it would allow different credit unions of different sizes to avail of opportunities suitable for their balances and what they had in reserve. I note they also want a full review of section 35 lending. I certainly support that. Anything which allows credit unions to develop and grow beyond the current permitted limits is to be welcomed.

A new appeal mechanism should be introduced. We often get the sense that the Central Bank, in which we have huge trust, sees things from a single perspective, that is, a fiscal perspective, and perhaps does not view things from a community perspective as well. Of course, we want investors' money to be protected, but that protection should not limit the ability of credit unions to invest.

Credit unions and others are worried that the regulatory reserve ratio is too crude and blunt an instrument which does not take into account the risks faced by credit unions. That relates to the original point about the tiered system.

We would like the credit union movement to be empowered to contribute to the alleviation of the housing crisis in the State. I welcome that on 1 February the Central Bank made a decision to allow credit unions to have a role in funding social housing through tier 3 approved housing bodies. The figure involved is only €700 million, but they could invest billions of euro and fund tens of thousands of houses.

This goes to the core of the ethos of the credit union movement. It wants to reinvest in communities and there is no better way to do that than through housing. Why can it not become involved in the provision of affordable and private housing and mortgages? With proper regulation this would be a important step forward which could secure our a future in a broader sense. One of the major challenges facing multinationals coming into the country is getting accommodation for the workers who come with them.

Credit unions have, of course, had trouble. I live in Rush. Rush and Lusk ran into trouble, as did Newbridge. The key point is that levies and contributions imposed on the credit union sector have a legal basis that needs to be checked.

The committee acknowledged that the savings protection scheme of the Irish League of Credit Unions has provided €73 million in stabilisation funds to 64 credit union without any resort to taxpayer funds. This means that no taxpayer's money has been used to protect credit union investors and clear up the problems they have experienced, something which cannot be said about the pillar banks.

They also still have a stabilisation fund of €90 million. This issue needs to be addressed at every level. I believe the Minister of State's heart is in the right place and that he will look positively at this issue and afford more people the opportunity to avail of the funds available through credit unions. Experience has shown us that they have been and continue to be the most family and customer friendly banks in Ireland today.

I thank all of the Senators who have contributed to the debate. Any of them who has heard me speak about credit unions knows of my long-standing regard for them. The credit union in Gorey has helped or funded every business there, from medical practices to farmers and retailers. That has been the case less in the past two decades, but, as Senator Kieran O'Donnell said, the best of businesses traded because they had an extra credit line from the credit union. I know that to be 100% the case in Gorey and have no doubt that the same is true for every other credit union throughout the country. It is important, however, to be prudent. I would not like to see credit unions getting involved in the private construction sector which is volatile. I was involved in the banking inquiry for two years, with Senator Kieran O'Donnell and others. The banking sector in Ireland collapsed because the construction sector was over-leveraged, particularly in the commercial real estate market. Private guarantees were given that were not enforceable or enforced. The mechanism is available to some of the credit unions to participate with the approved housing bodies which are State-funded to construct social housing, about which I am pleased. The regulations were changed only six weeks ago. There is now up to €700 million available to tier 3 approved housing bodies through a regulated vehicle which can be established by any private body, including credit unions.

Some matters are appealable to the Irish Financial Services Appeals Tribunal. The regulator is the Central Bank of Ireland. However, not all matters can be appealed to the tribunal because the appeals body becomes the regulator, which is not possible.

More could be done on the issue of SME lending. The figure I have is approximately €100 million, which is low. However, one has to be careful because I am almost 100% certain that in the 1990s, when there was much less money in the country, hundreds of millions of euro were lent to SMEs. There was not €100 million lent in Gorey, but a lot of money was lent there to the SME sector. There is almost €17 billion available. The credit unions are not pleased at having to provide that fund for very low yield investors because they get practically nothing back, which is not a good use of their funds. They would like to have a much higher yield and return, which is understandable. The money has to be protected. People have money on deposit and it must be returnable.

The area about which I am conflicted and on which Senators Kieran O'Donnell, James Reilly and Tony Lawlor touched is the knowledge base of credit unions. The people behind the counter in a credit union know the people who pay back the money. While we are moving towards online systems and faceless banking - a term people do not like - credit unions know the people who pay back their loans. I know for certain, going back to the 1990s, that there were lots of guys who did not meet the criteria, but they still got loans which were repaid because they were good for them. That is not how the system works today, but moving away from people who know each other and whose word is their bond is the wrong direction to take. However, that is a matter for the regulated entity.

The section 35 process has started and there will be consultation with the Central Bank during the year. I cannot say when it will finish, but I hope it will be soon. The Minister for Finance is playing and will continue to play a constructive role in support of credit unions. I will support him in that regard. He is continuing to progress, develop and find ways of doing business to better serve members. There is a balance to be struck. He will continue his engagement with the credit union movement through the well established Credit Union Advisory Committee, CUAC, to ensure the safety of members' savings, support credit unions, broaden the range of services for members and safeguard the credit union sector. Thankfully, there was not a €1 billion hole in the books of the credit union movement, but there was a concern about this at one stage. It showed that the credit unions were more prudent than anticipated, which is good.

I think I have touched on most of the issues raised. I strongly support the credit unions and hope we can get to a place where they will be more satisfied than they are now, but that does not mean that there should be light touch regulation, something I think the Acting Chairman mentioned. It does not work because eventually somebody becomes way too clever and damages the entire sector. When there is almost €17 billion on deposit, it has to be protected or eventually somebody will do something silly. The credit union sector is prudent and careful and has come through the crisis much better than most others. The Minister for Finance and I support it fully, but the era of light touch regulation is over. There will be regulation. We want to make sure it will be prudent and strike the correct balance.

I thank the Minister of State. For the purposes of clarification, I was making the point that I was not in favour of light-touch regulation.

Sitting suspended at 5.50 p.m. and resumed at 6 p.m.