Opinion of the European Central Bank of 4 September 2012 on credit unions (CON/2012/68)
Date: 2012-09-04
Institutions: European Central Bank
Subjects: Ireland, credit union, financial stability, financial supervision, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 4 September 2012  

on credit unions 

(CON/2012/68) 

Introduction and legal basis 

On  18  July  2012,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Irish  Minister  for 

Finance for an  opinion on the  General  Scheme  of the  Credit  Union  Bill  2012 (hereinafter the ‘General 

Scheme’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning of the European Union and the third and sixth indents of Article 2(1) of Council Decision 

98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities 
regarding draft legislative provisions1, as the General Scheme relates to the Central Bank of Ireland (CBI) 

and contains rules applicable to financial institutions insofar as they materially influence the stability of 

financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article  17.5  of  the  Rules  of 

Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the General Scheme  

1.1   The General Scheme proposes wide-ranging measures to strengthen the regulatory framework for 

credit unions, including more effective governance and regulatory requirements.  

1.2  The  publication  of  the  General  Scheme  was  a  structural  benchmark  of  the  EU-IMF  Financial 

Support Programme for Ireland.   

1.3  The General Scheme’s regulatory requirements framework for credit unions includes requirements 

in  respect  of  reserves,  liquidity,  borrowing,  lending,  savings,  investments,  operations,  risk 

management,  records  management,  information  systems  and  outsourcing.  Credit  unions  will  also 

be required to prepare a strategic plan. The CBI is given the power to make regulations relating to 

the above matters after consulting with the Minister and other bodies.   

1.4  The General Scheme sets out a statutory governance code with minimum governance standards for 

credit unions. Credit unions will be required to submit an annual compliance statement to the CBI 

certifying compliance with these governance standards. The General Scheme sets out the roles and 

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                      
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responsibilities of the chair, board and management of credit unions. It also deals with fitness and 

probity, skills, conflicts of interest and the need for robust systems, processes and controls. 

1.5  The  General  Scheme  establishes  a  statutory  stabilisation  regime  for  credit  unions.  It  sets  out  the 

conditions under which stabilisation support will be available to viable but undercapitalised credit 

unions.  In  particular,  the  CBI  may,  subject  to  the  consent  of  the  Minister,  provide  stabilisation 

support  to  a  credit  union.  The  General  Scheme  provides  that  credit  unions  contribute  to  a 

stabilisation fund that will meet all costs of stabilisation support. The implementation by the CBI of 

the  stabilisation  regime  will  be  examined  by  a  Stabilisation  Committee,  whose  members  will  be 

appointed by the Minister.   

1.6  The  General  Scheme  establishes  a  process  for  the  restructuring  of  credit  unions.  It  sets  out  the 

process  under  which  funding  will  be  available  to  facilitate  the  restructuring  of  credit  unions  and 

establishes a restructuring fund. The Minister may provide financial support from the Restructuring 

Fund to a credit union. Credit unions will contribute to the Restructuring Fund to meet the cost of 

restructuring. The Minister will be reimbursed for any funds advanced to the Restructuring Fund. 

The restructuring process will be facilitated and overseen by a Credit Union Restructuring Board 

(the ‘Rebo’), whose members will be appointed by the Minister. Any restructuring plan approved 

by the Rebo must be submitted to the CBI for approval.   

2. 

General observations 

2.1  The  EU-IMF  Financial  Support  Programme  requires  reform  of  Irish  credit  union  law  and 

strengthening  of  the  regulatory  framework  applying  to  credit  unions,  including  effective 

governance and stabilisation requirements. The ECB notes that the General Scheme is in line with 

the requirements of the EU-IMF Financial Support Programme for Ireland.   

2.2  As  specified  in  the  ECB’s  Convergence  Reports2  and  opinions,  any  involvement  of  a  national 

central  bank  (NCB)  in  the  application  of  measures  to  strengthen  financial  stability  must  be 

compatible  with  the  Treaty,  i.e.  NCBs’  functions  must  be  performed  in  a  manner  that  is  fully 

compatible  with  their  functional,  institutional,  and  financial  independence  so  as  to  safeguard  the 
proper  performance  of  their  tasks  under  the  Treaty  and  the  Statute3.  To  the  extent  that  national 

legislation  provides  for  a  role  of  an  NCB  that  goes  beyond  advisory  functions  and  requires  it  to 

assume  additional  tasks,  it  must  be  ensured  that  these  tasks  will  not  affect  the  NCB’s  ability  to 
carry out its ESCB-related tasks from an operational and financial point of view4.  Additionally, the 

inclusion  of  NCB  representatives  in  collegiate  decision-making  supervisory  bodies  or  other 

2  

3   
4  

See  2012  Convergence  Report  p.  26.  All  ECB  reports  and  opinions  are  available  on  the  ECB’s  website  at 
www.ecb.europa.eu. 
Opinion CON/2010/31. 
Opinion CON/2009/93. 

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authorities would need to give due consideration to safeguards for the personal independence of the 
members of the NCB’s decision-making bodies5. 

2.3  The ECB notes the robust nature of the new measures and welcomes their substantial enhancement 
of the regulatory tools available to the CBI6 to improve protection for credit union members and 

stability in the credit union sector.  

2.4  As regards the financing of these enhanced CBI powers, the ECB refers to the principle of financial 

independence under which an NCB must have sufficient means to perform its tasks related to the 
ESCB and its national tasks7. As pointed out in previous ECB opinions, when allocating specific 

non-ESCB  related  tasks  to  the  NCBs,  e.g.  tasks  in  the  area  of  financial  supervision  or  consumer 

protection, an adequate amount of human and financial resources must also be allocated in order 

for these tasks to be carried out in a manner which will not affect the NCBs’ operational capacity to 
perform  their  ESCB-related  tasks8.  The  CBI  should  therefore  possess  sufficient  human  and 

financial resources to efficiently perform any additional tasks introduced by the General Scheme in 

addition to its current tasks, and should not be adversely affected in carrying out its ESCB-related 

tasks, from an operational or financial point of view, due to any additional tasks introduced by the 

General Scheme. 

2.5  The ECB looks forward to further consultation on the Credit Union Bill 2012 once it is published.  

3. 

Stabilisation Fund 

3.1  The  General  Scheme  specifies  in  Head  30(1) that  nothing  in the  stabilisation  part  of the  General 

Scheme prevents or restricts the performance by the Governor or the CBI of functions in relation to 

any  credit  union  including  functions  under  the  Central  Bank  and  Credit  Institutions  (Resolution) 

Act 2011. This provision should also specify that nothing in the General Scheme will prejudice the 

compliance  by  the  CBI  with  the  prohibition  on  monetary  financing  under  Article  123  of  the 
Treaty9.  

3.2  Head  30(2)  states  that,  subject  to  the  consent  of  the  Minister,  the  CBI  may  provide  stabilisation 

support  to  a  credit  union  and  Head  30(2A)(a)  states  that  before  deciding  to  provide  stabilisation 

support  the  CBI  must  have  regard  to  the  best  use  of  the  resources  available  in  the  Stabilisation 

Fund. Head 30(7) provides that the Stabilisation Fund should meet cost of the stabilisation support 

5   
6  
7  

8  
9   

Opinion CON/2010/94. 
See also paragraph 2.1 of Opinion CON/2009/50. 
See  the  ECB’s  Convergence  Report,  May  2010,  p.  21,  paragraph  3.1.5  of  Opinion  CON/2009/93,  paragraph  3.2.1  of 
Opinion CON/2011/46 and paragraph 3 of Opinion CON/2011/69. 
See, for example, paragraph 3 of Opinion CON/2007/8 and paragraph 3.3 of Opinion CON/2011/76. 
The  monetary  financing  prohibition  in  Article  123  of  the  Treaty  is  further  clarified  in  Council  Regulation  (EC) 
No 3603/93 of 13 December 1993 specifying definitions for the application of prohibitions in Article 104 and 104b(1) of 
the Treaty (OJ L 332, 31.12.1993, p. 1) according to which overdraft facilities or any other type of credit facility with the 
ECB or the  NCBs  of  Member  States  in  favour  of  Union  institutions  or  bodies,  central governments,  regional,  local 
or  other  public  authorities,  other  bodies  governed  by  public  law,  or  public  undertakings  of  Member  States  are 
prohibited, as is any purchase directly from these public sector entities by the ECB or NCBs of debt instruments. 

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and any other support, financial or otherwise, including costs incurred by the CBI in the exercise of 

its functions under this relevant part of the General Scheme, required as a condition of stabilisation 

support.  The  ECB  understands  that  Head  30(2)  in  conjunction  with  Head  30(7)  requires  the 

stabilisation support to be provided directly from the Stabilisation Fund, and not from CBI’s funds. 

This understanding is confirmed by Head 32(2) which specifies that the CBI does not provide any 

funds to the Stabilisation Fund from its own resources. In line with this understanding, and having 

regard  to  the  principle  of  financial  independence  which  is  part  of  the  principle  of  central  bank 

independence referred to in Article 130 of the Treaty, the General Scheme should unambiguously 

state either that the CBI will not provide any funding to finance the stabilisation support to credit 

unions or that the CBI provides stabilisation support from the Stabilisation Fund and not from its 

own funds.  

3.3 

In addition, it is unclear how the Stabilisation Fund will be financed prior to contributions being 

made by the credit unions. It is also unclear how stabilisation support can be provided where there 

are  insufficient  resources  in  the  Stabilisation  Fund.  The  ECB  would  welcome  clarifications  on 

these points in the General Scheme. 

3.4   Under  Head  44(6)  of  the  General  Scheme, in  conjunction  with  Section  61H  of  the  Central  Bank 

Act 1942, the CBI may collect levies on behalf of the Rebo from credit institutions in respect of the 

performance by the Rebo of its functions only if the CBI and the Rebo agree on an arrangement for 

this purpose. The ECB expects that if the CBI enters into such an arrangement with the Rebo, the 

CBI’s role will remain consistent with the prohibition of monetary financing under Article 123 of 

the  Treaty,  as  supplemented  by  Regulation  (EC)  No  3603/93,  which  prohibits,  inter  alia,  any 

financing by a central bank of the obligations of the public sector vis-à-vis third parties and further 

requires an arrangement with the Rebo under Head 44(6) in conjunction with Section 61H(4)  of 

the Central Bank Act 1942 to be without prejudice to the independence of the CBI, in particular its 

financial and institutional independence. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 4 September 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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