Buried amid a mass of fairly routine stuff, the report revealed that the regulator had appointed external accountants to three credit unions.

That's more than 1% of the 289 credit unions visited during the year (the high number of inspections itself indicates a degree of concern). If that proportion of bank branches were not in order, it would be seen as a crisis.

The regulator revealed that it also had to "assist the boards (of the three errant unions) in implementing remedial actions in the interests of their members".

That hints at fairly serious concerns in a big sector of our financial services industry.

Last year, credit unions had 14.4bn in assets, an increase of 11% on 2005. But as lending income is squeezed by competition from a plethora of (often cheaper) lenders, they are relying more and more on investments.

Crucially, credit unions are now investing 7.3bn of members' funds . . . which means its level of lending has slipped below half of its total funds.

A financial industry source describes that as "appalling" . . .especially at a time when the whole country has gone mad on credit. "A few years ago, the level of lending was a healthy 65%, " he says.

Many unions compete aggressively on loans, charging as little as 6%-7%, which is as low as the cheapest banks. But one major reason for the lending shortfall is that many others charge a lot more and some even stick to the old system of charging 1% a month no matter what the interest rate environment.

"Charging 1% a month (12.6% per annum) makes it easy to calculate interest. But this shouldn't be the criteria for setting an interest rate, " the source says. "Some unions cling to the 12.6% rate as if it were some sort of mantra, but it's not a rule. You have to ask, who is going to borrow money at such a high rate? Those who can't get credit anywhere else and are likely to be a risk, that's who."

Adding to the risk is the need to invest an ever-growing portion of the total assets.

Even global players, with the world's top financial experts onboard, have lost hundreds of millions in the wrong type of investment. Credit unions are not immune either. They had their own Barings-scale scandal in 1990 when a savings protection scheme failed and the state of Rhode Island (the smallest in the US) had to bail it out to the tune of $450m.

Could the same thing happen here? One credit union experienced a mini 'run' in 2005 and worse was averted when the regulator for the sector (at the time) was forced to issue a statement.

Last year several credit unions collectively lost many millions by investing in highyield, high-risk instruments more appropriate for Wall Street's Gordon Gekko than the local union office on the main street of Ballywherever.

The potential for difficulties here in a sector that comprises over 500 disparate unions, many tiny and mainly run by volunteers, is scary.

Elsewhere in the report , the regulator refers to "important challenges that still remain". It adds: "During 2006 considerable progress was made in developing the system for the regulation of credit unions with a view to building compliance."

That last bit is a bit worrying. The regulator, admittedly relatively new to the role of overseeing credit unions, hopes that some day they might build compliance.

It also pinpoints another huge issue for the sector. "The attraction of appropriately qualified volunteers to credit unionsf need(s) to be addressed if the movement is to continue to thrive in the future."

Reading between the lines, you can see how credit unions are a victim of their own success. Managing billions worth of investments requires a level of expertise that challenges even the world's biggest financial institutions. Where do you find volunteers capable of competing with them across the length and breadth of this island?

Another pressing issue is the establishment of a protection scheme to guarantee deposits. The regulator says it "has been actively engaged with the Irish League of Credit Unions (ILCU) on proposals to reform the structure of the existing Savings and Protection Scheme".

However, a credit union source says: "This (issue) has been going on for three or four years. As it stands, it's incredibly unusual to have a selfinterested body such as ILCU owning and regulating deposits."

Senator Joe O'Toole withdrew a private members bill on the issue as he was set to bring it before the Seanad. This would see the introduction of a new deposit-protection scheme and it may well be resurrected given the lack of progress in this area, according to our source.

The ILCU does already have a sort of protection scheme, but it has been described as more like a "stabilisation" scheme that falls short of the cast iron-guarantee offered by government-backed schemes around the world.

Our source blames the government here for failing to come with something similar.

"The Financial Regulator has no responsibility for establishing a deposit protection scheme. They only have a duty to approve such a scheme. The ultimate responsibility is with the government itself. And I would say they are not doing the job. They're aware of the problems but it's a case of seeing the elephant but hoping that its in someone else's room."

The banking section is very concerned about potential problems in credit unions as things stand and the potential impact on the ratings of Irish banks in the event of any crisis, he warns.

The source says the unions should get back to the basics.

They are forced to get into ever-riskier investments so as to pay members decent dividends because they are not lending enough money.

"Yet credit unions are very competent at doing what they were supposed to be doing in the first place . . . lending money into the community, " he says.