Irish Eyes Aren't Smiling-And Neither Are Yanks'

If you find yourself in an Irish pub this summer-and by that I mean the authentic public houses with the history embedded in the mist of the Emerald Isle and not the franchise at your local mall-I wouldn't suggest complaining to the local lads about the tough year you've had in America's credit unions.

First, nobody gives a Guinness' foam about another cranky Yank. And second, you think you've got reasons to drink? Ireland's 400 or so credit unions have plenty of arguments of their own worthy of an evening on a barstool.

The Celtic Tiger has become one of Europe's Garfield. Think Las Vegas economy with rain. A report in Ireland's Independent newspaper referred to the situation for the country's credit unions as a looming "tsunami." There have been loan and investment losses, towns full of struggling members, and now, as the Independent reported, the country's financial regulator has "the credit union sector firmly in his sights."

One of the regulator's concerns is that Ireland's CUs are under-reserved for potential loan losses; he believes they're about 40% short of what's needed to cover bad debts. Not surprisingly, the country's CUs say they have adequate reserves on hand.

Another primary objective of the regulator is to have Ireland's credit unions start paying a share of the deposit insurance program in the country. Ireland doesn't have a corporate (you're thinking that they can thank those four leaf clovers), so instead credit unions deposit excess funds in banks (the clover apparently isn't all powerful). The CU deposits are insured at those banks. Now the regulator would like to see credit unions come up with about 24 million Euros to pay a portion of the bank insurance tab.

Credit unions have responded by noting they might consider some sort of payment, but not the amount being requested by the regulator. Ireland's CUs have pointed out that deposits are secured by a separate 125-million Euro savings protection fund that is managed by the Irish League of Credit Unions.

Meanwhile, in a development showing governments around the world have far more in common than the evening news would suggest, the Independent reported Ireland's CUs have been "horrified" to find themselves swept up in a piece of national legislation. Sound familiar? In this case, it's the Credit Institutions Stabilisation Act, which the Independent noted, was "ostensibly designed to deal with the banking crisis, but also gives the Finance Minister unprecedented powers to force change on credit unions."

Most U.S. credit unions never meet their Irish counterparts unless it's at a World Council event, such as that coming later this year in July in Scotland. But perhaps it's not too late to have CUNA fly some representatives from Ireland into its upcoming GAC to talk about what happens when you let down your lobbying guard. The Irish League of Credit Unions now says it is actively opposing any credit union review by the regulator.

In fact, the Irish league believes the regulator doesn't sufficiently distinguish between banks and credit unions. The ILCU has launched a lobbying effort to stress the difference, and has even asked the chief regulator to spend a week working in a credit union so he can really gain new insights and understanding.

No Gold At End of Rainbow

For members, it's been tough, too. Approximately 60 CUs in the country paid no dividends at all in 2010; the Irish league says that number will rise in 2011.

Ireland's credit unions are deeply woven into an intertwined financial and social movement in the country. And despite all the news-or because of it-people on the island continue to believe in the not-for-profit financial co-ops. Some 40,000 people joined Ireland's CUs in 2010. That brought overall membership to 3 million, which isn't bad for a country with about 6 million residents.

So don't try bragging about your member penetration numbers over that Guinness, either.

• Attend any credit union meeting-even in the last year or two-and you'll find most professionals and volunteers to be a pretty optimistic and upbeat lot. But apparently CU people and their members just don't like polls.

Discover Financial Services recently released a survey that found members pessimistic about their finances, with 47% saying their wallets are getting thinner. That number is on par with non-members, and is only worthy of note because in previous Discover polls CU members always expressed a more positive outlook. Similarly, 57% of members and non-members rated conditions as poor, a two-percentage-point increase among members.

Meanwhile, in Southwest Corporate's CEO Confidence Index, results showed confidence levels at some of the lowest levels ever recorded, at just a fourth of what it was in 2005 and 2006. Looking forward to 2011, the CU CEOs said, well, they weren't looking forward to 2011. The most depressed of all? CEOs at large CUs.

The poll results were released at the same time the Federal Reserve released its quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices finding "moderate to large factions of banks reported they expected improvement in delinquencies and charge-off rates during 2011 in every major loan category." The most upbeat of all in the bank survey? Executives with large banks.

Credit unions have often been a lagging indicator, and apparently that extends beyond the balance sheet.

Frank J. Diekmann can be reached at fdiekmann@cujournal.com.