A Look at Deposit Insurance

For the past two years, deposit insurance options have been a growing topic for credit unions. Early in 2000 the Western Roundtable appointed a study group. This group commissioned a report on the NCUSIF by Callahan and Associates. There was a presentation at the National Roundtable meeting in May. The need for reform and options was directly addressed at each Renaissance Commission hearing. At the end of the year, NCUA continued their misappropriation of the earnings of the fund by increasing the transfer rate to cover over 2/3 of the NCUA's total expenditures. This money should have been kept in reserve for funding insurance losses.

 
 

For the past two years, deposit insurance options have been a growing topic for credit unions. Early in 2000 the Western Roundtable appointed a study group. This group commissioned a report on the NCUSIF by Callahan and Associates. There was a presentation at the National Roundtable meeting in May. The need for reform and options was directly addressed at each Renaissance Commission hearing. At the end of the year, NCUA continued their misappropriation of the earnings of the fund by increasing the transfer rate to cover over 2/3 of the NCUA's total expenditures. This money should have been kept in reserve for funding insurance losses.

The biggest story may be that the FDIC is now actively proposing (not yet in legislative form, however) to convert the FDIC funds to mutual ownership. That is, the banks would own ''their'' fund. In a December 26 American Banker article, the lead stated that this ''innovative idea is catching on with bankers and regulators.''

The article goes on to note: ''The FDIC's proposal mirrors the current credit union model in which institutions put 1% of their deposits into a fund but can still count the money as theirs.'' How does the ABA feel about this? ''It is a very attractive model,'' says James Chessen, chief economist for the ABA. Remember when the bankers were attacking the NCUSIF for ''double counting!

Where Insurance Began

Remember that the origins of the NCUSIF model were the cooperatively insured funds at the state level. I believe that the NCUSIF model is increasingly flawed and that the cooperative model needs to be reinvented. It is doubtful that NCUA can reverse course and give up the fleecing of ''their'' golden goose.

The adoption of reform at the federal level by the FDIC may open the way for action to broaden private options for all credit unions. The one multi-state fund operating and competing in nine states is ASI currently in the midst of strategic change. One of the broad objectives is to grow from the current $6.2 billion of insured shares to over $10 billion. This should provide a large enough base to insure all but perhaps the top three credit unions in the country.

There are a number of other areas where ASI is changing but the bottom line is that insurance options are a system-wide effort, not something a single firm can accomplish by itself. The exciting part about the effort to create true options to the NCUSIF is that a whole new vision of the role of the insurer is under development. Not only is expanded member coverage, differential pricing and more effective oversight being discussed, but also the principle that the insurer is a business partner promoting the well being of all of its members, not merely to rescue a troubled few, at the core of the efforts.

Stayed tuned in 2001. The stronger the options available for credit unions the greater the probability that NCUA might change its approach to the NCUSIF. If the FDIC moves, then credit union insurance reform may ride on the legislative coattails.

 

 

 

Jan. 15, 2001


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