The Financial Regulator will not entertain a surprise proposal from the Irish League of Credit Unions (ILCU) to transform its €119m proprietary savings protection scheme (SPS) into an industry-wide rescue fund, despite a major lobbying effort by league members.

The league has proposed setting up a "stabilisation company" outside the control of the regulator but with the power to close or merge credit unions which get into financial trouble. The company would replace the SPS with a new scheme available to all credit unions, but that would be consolidated in ILCU's accounts.

The move was in response to a consultation paper by the regulator which set out six options for dealing with the ILCU scheme and protecting the credit union sector from liquidity and solvency crises.

ILCU, reacting to anger among its membership, tried to short-circuit the consultation by introducing its own separate plan early this month, but it is understood regulatory officials are only considering ILCU's proposal in the context of the six original options. ILCU members passed a motion approving the alternative plan last weekend. About 100 ILCU credit unions have sent templated letters to the registrar of credit unions supporting the league's plan over the consultation process.

ILCU officials are also understood to be lobbying finance minister Brian Lenihan and TDs in an effort to change the regulator's position. The Credit Union Development Association, which represents some of the larger credit unions, is understood to be broadly behind the regulator's call for a statutory solution.