Since the government has provided a mechanism that exempts cooperative credit unions with assets less than a million dollars from what Free National Movement (FNM) Senate Leader and former Attorney General Carl Bethel termed "certain financial due diligence requirements", he said the government could be held "absolutely liable" for any losses depositors incur as a result of that exemption.

The Bahamas Cooperative Credit Unions Bill was passed in the Senate last week, and contained a provision exempting cooperative credit unions with assets less than $1 million from some of the reporting requirements, such as the need to supply audited financial statements to the Central Bank and the need to maintain the statutory reserve liquidity deposit.

Attorney General Allyson Maynard-Gibson said during her contribution to Senate debate on the bill that "small credit unions will not fall under the ambit of this bill. They will continue to operate as they do now and will not be subject to this regulatory framework".

Bethel said the government should provide some kind of deposit insurance to protect the government in the event of a loss.

"The government has created a framework that allows a small credit union to avoid the standards of financial prudence that are designed to ensure the financial viability of that credit union. The government has provided a statutory exemption, and if as a result of that statutory exemption a depositor loses money saved in that institution, the government is liable," he insisted.

"That is not something that should be in this bill unless at the same time there is some provision to ensure that persons who are depositors and members of such credit unions have some recourse if the credit union - which this government is exempting with this statute from financial due diligence and prudence - if that credit union should fail, they should have some recourse."

Bethel noted that exemption is from requirements to ensure that the statutory reserves, retained earnings, qualified shares and equity shares are at no time less than 10 percent of its assets. Statutory reserves may be seen as what a business must keep out of every dollar taken in, in order to provide a buffer and security for business operations to insure the overall operation against defaulters.

Bethel said it was a matter of concern that this requirement is not to apply to the smaller credit unions, and that it was also a concern that the credit union "may" stop lending and notify the Central Bank if the statutory reserves and retained earnings dip below ten percent. "If you are at a point where your statutory reserves and retained earnings are perilously low, the statute should say that you "must" stop lending and notify the Central Bank, not "may". You don't have the right to decide," he said.

"If you are at the point where you are essentially an insolvent institution, you must stop lending."

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