ILCU refutes Central Bank analysis of investment opportunities for credit unions
Posted on: 15 Sep 2021
- Current investment regulations too narrow and restrictive
The Central Bank of Ireland (“CBI”) has today issued a report 'Credit Union Investments, September 2021' containing their analysis of the impact of the 2018 investment regulations on credit union investments. The analysis concludes that the investment classes and limits set out in the regulations continue to provide an appropriate range of investment choices and diversification opportunities for credit unions. The ILCU fundamentally disagrees with this assertion and has previously engaged with the CBI on a number of pragmatic recommendations in relation to potential types of investments, liquidity and capital regulatory requirements.
Commenting on today's report, ILCU CEO Ed Farrell said, "The additional investment asset classes introduced in 2018, including supranational bonds and corporate bonds, have clearly not increased diversification in credit union investment portfolios. On the contrary, there continues to be significant concentration of credit union investments within the finance/banking sector. Currently, over 90% of credit union investment portfolios remain exposed to financial sector counterparties via deposits and bank bonds."
"Credit unions are very aware of the requirement under Section 43 of the Credit Union Act that investments do not cause undue risk to members’ savings. However, the current investment regulations are too narrow and restrictive, as they provide inadequate practical investment asset mix opportunities for credit unions."
The ILCU will be establishing a cross sector working group to collaboratively develop practical recommendations in respect of the investment framework. This group will focus on a number of areas including:
- performing an objective assessment of the existing permitted types of investments and related limits,
- proposal of new categories of investments to achieve real diversification,
- development a liquidity approach that is reflective of actual credit union liquidity, and
- the application of capital regulatory requirements that reflect the underlying risk of investments.
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The Central Bank report ‘Credit Union Investments, September 2021' can be found at
https://www.centralbank.ie/docs/default-source/regulation/industry-market-sectors/credit-unions/communications/reports/credit-union-investments.pdf