Credit unions are financial cooperatives which provide access to credit and savings facilities to their members. There are 57,000 credit unions worldwide in 103 countries with 208 million members worldwide. Credit unions in Ireland have 3.3 million members which is a higher than average proportion of members per capita. They are member-owned and not for profit entities. The credit unions’ business primarily relates to savings and consumer loans but not mortgages. To do business with a credit union, one must be a member of the credit union. Credit unions are used by individuals. There are some 390 credit unions in Ireland and have on average a balance sheet size of €35 million. Compared to banks in Ireland, credit unions are very small.
Credit unions are regulated by the Central Bank of Ireland and required under Irish law to keep a minimum reserve as a buffer to absorb losses before they can have any impact on deposits and deposit guarantees. During the financial crisis, a number of credit unions in Ireland fell below the minimum reserve requirements although this is no longer the case.
The Troika’s Programme of Financial Support for Ireland from the European Union and the International Monetary Fund concluded that the Irish credit union system needed restructuring because a significant number of credit unions were undercapitalised during the crisis causing concerns for financial stability.
In July 2014, Ireland notified to the European Commission the country’s restructuring aid scheme for Irish credit unions. The plan aims to stabilise credit unions and amalgamate various credit unions. The scheme will have a budget of €280 million, out of which €250 million would funded by the Irish State to support amalgamations of credit unions and €30 million to stabilise specific credit unions which will be funded via a sector levy. Viable credit unions with a certain minimum level of reserves would be able to apply for capital injections to raise the reserve ratio to the required level. Credit unions with a reserve ratio below this threshold would need to have their situation resolved. Beneficiaries would have to repay the injections which they received, or if they are unable to do so, the outstanding amount would be recovered from the sector by means of a levy. This repayment mechanism means that Ireland would be reimbursed in full.
On 16 October 2014, the European Commission approved the restructuring aid scheme. The scheme was designed to restructure the credit union sector to be in line with EU State aid rules. The Commission found that the scheme would strengthen the Irish financial sector, while limiting the risk of distorting competition in the Internal Market.
This was the first scheme that a Member State put in place for the restructuring of small financial institutions as foreseen in the European Commission's 2013 Communication on State aid rules to support measures in favour of banks in the context of the financial crisis. It was a very quick turnaround from a notification in July 2014 to a decision in October 2014. It is notable though that the notification was not made until 2014 given that the crisis had been underway for a number of years by then. However, it was a welcome confirmation that the State aid which will be provided to the sector was approved by the European Commission.