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Credit Union Regulation

Dáil Éireann Debate, Tuesday - 20 February 2018

Tuesday, 20 February 2018

Questions (142)

Pearse Doherty

Question:

142. Deputy Pearse Doherty asked the Minister for Finance if the existing counterpart limit of 25% in regard to credit union investment will be maintained in view of the fact there have been no regulatory issues as a result of the current rate; and if he will make a statement on the matter. [8154/18]

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Written answers

In 2017, the Central Bank undertook a review of the investment framework for credit unions, which indicated that there existed a significant level of concentration in credit union investment portfolios in relation to both investment product and counterparty.

In May 2017, consultation paper 109, CP109, was published which consulted on a number of potential changes to the investment framework. CP109 proposed the reduction in the counterparty limit from 25% to 20% of total investments to assist the objective of increased levels of diversification in investment portfolios.

Feedback received to the consultation indicated that credit unions did not view it as an appropriate time to reduce the counterparty limit, citing the current low interest rate environment and the exit of certain counterparties from the market as challenges to meeting a reduced counterparty limit.  

Taking account of the feedback received through submissions to CP109, the Central Bank undertook further analysis on credit union sector investment counterparties to understand further the likely impact which a reduction in the counterparty limit would have. This analysis indicated that for the majority of credit unions a reduction in the counterparty limit will not pose a significant challenge.  

On 1 February 2018, the Central Bank published the feedback statement on CP109 and amending investment and liquidity regulations for credit unions. These amending regulations will commence on 1 March 2018. These regulations include a reduced counterparty limit of 20% of total investments for credit unions. Transitional arrangements have been extended which will provide a period of two years from commencement of the regulations for credit unions to become compliant with the reduced counterparty limit. In addition, credit unions will be permitted to hold to maturity any fixed term investments which they hold at commencement of the regulations which result in them being non-compliant with the reduced counterparty limit. 

The Central Bank have informed me that it is its view that the reduction in the counterparty limit is appropriate to assist in driving diversification in investment portfolios and, taking account of the additional counterparties which will be available to credit unions as a result of changes to the permitted classes of investments being introduced. Additionally, the changes being introduced to the liquidity framework for credit unions and the increases to concentration limits for certain permitted classes of investments will assist credit unions in meeting this requirement. Further detail on these changes is included within the feedback statement on CP109 published on the Central Bank website.

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