ANALYSIS:THE 10 credit unions under heightened scrutiny from the Financial Regulator represent but a small minority of the 419 credit unions registered in the Republic.

Although the regulator says that credit unions “taken as a whole have very adequate reserves and liquidity”, its work with these 10 credit unions centres on their risk profile.

Although Registrar of Credit Unions Brendan Logue has directed Mitchelstown credit union to curtail lending in a strongly worded letter to its board, it is understood he has not issued similar directions to any other credit unions.

His letter last month to the Mitchelstown board, however, starkly illustrates the severity of the risk attaching to any loss of confidence in a credit union.

“A run on members’ savings took place last year and it is clear that the credit union would have difficulty surviving a repeat of this. You advised us that no contingency plan exists to deal with any of the potential threats to the credit union and this is matter of great concern.”

While there is considerable annoyance in regulatory circles about the leaking of Logue’s letter, his intervention follows years of rivalry between factions on the Mitchelstown board.

Five years ago, for example, accountants Deloitte were appointed to examine the business following a report from its supervisory committee that administration of the organisation was being hampered by divisions on the board.

There were indications yesterday from independent sources that the board has now resolved to work as a cohesive unit to address the credit union’s difficulties. However, Logue in his letter last month made it clear the “dysfunctional operation of the board” led to a serious loss of members’ confidence in the union.

In a statement yesterday, the regulator pointed out that the Government deposit protection legislation protected deposits of €100,000, and added that the savings protection scheme fund of the Irish League of Credit Unions was also available to members.

“Members of credit unions have always demonstrated extraordinary loyalty to their credit unions,” the regulator said.

In a very public way, that loyalty is being tested in Mitchelstown.

There were warnings three years ago that some credit unions would probably go out of business because clients were not repaying their loans, but that never happened.

As the economy shrinks, the troubles in Mitchelstown underline the importance of confidence in the movement.