Dual Chartering: Getting the Motors Running Again

The best hope for a dynamic helpful credit union movement is a healthy competing dual chartering. Unfortunately, owing to the dominance of the federal regulator and the timidity of private insurers, dual chartering is a pale imitation of its former self, sinking further toward oblivion.

 
 
The best hope for a dynamic helpful credit union movement is a healthy competing dual chartering. Unfortunately, owing to the dominance of the federal regulator and the timidity of private insurers, dual chartering is a pale imitation of its former self, sinking further toward oblivion.

Once upon a time, dual chartering was full of vim. Healthy private insurers allowed for many state-chartered credit unions to make some experiments, to stretch their boundaries some. Fifty states had fifty chartering laws. Credit unions could choose the federal regulator or pick the state. Choosing the state may have meant more or less freedom of action, but one advantage of a state charter was that the regulators and the legislators were no farther than the state capital and they were accessible to argument for changes. A state charter could generally be more flexible and accommodating to local conditions.

With the collapse of a good deal of the private insurance cooperatives, federal insurance fairly took over. Any state-chartered credit union using federal insurance was then open to examination and correction by the federal regulator, which could couch any issue in terms of safety and soundness.

The result has been that the federal regulator has become not only the regulator of federally-chartered credit unions but also a supra-regulator for state-chartered credit unions, one that has become increasingly effective, powerful and invasive.
People I know have said that there is not much point any longer to a state charter, that the only advantage left lies in more liberality of field-of-membership regulations. Even business-lending and investment options available through some state charters are not so potentially effective as to be worth the bother.

Thus we slip toward a homogenous chartering system.

States as Incubators

But dual chartering was a stimulant to the credit union movement through the whole 20th century. Just as most of Franklin Roosevelt’s successful New Deal programs were incubated in the states, so too many of credit unions’ innovations first found life and success in state charters. First mortgages, credit cards, lines of credit, and the ability to freely set interest rates all germinated in the states, spread across the country and then found their ways into federal credit unions. No one can say what hitherto unimagined ideas will blossom in the minds of some credit union boards and employees. But it seems likely some of the best and boldest of future ideas will not receive a favorable hearing from the federal regulator for the simple reasons that it has to consider every issue nationally, not locally, and ponder all possible consequences to the very large share insurance fund.
Thus the need for vibrant state-chartered credit unions. But state charters will never have the vitality the movement needs so long as there is not a viable non-federal insurance option. Only with such an option, can a sufficient degree of independence from the federal regulator be achieved.

ASI’s Role

This is where ASI comes in. It is really the only viable long-term private insurer left, more than a dozen having succumbed over the years. And yet ASI has not done enough to make its option attractive to credit unions. It should be taking the lead in progressive examinations and regulations. It should break away from mimicking too closely the federal insurance, from offering only a cloned, me-too product.
Credit unions need a way to rekindle the dynamic dual chartering that made successes 50 and 30 years ago. But they need a partner on their path to the future. It would help if that partner were a forward-looking private insurer which could place state charters once again the van in the credit union movement. Everyone would benefit. It would be what’s come to be known now as a win-win situation.
 

 

 

Nov. 26, 2001


Comments

 
 
 
  • Let's go for it. We need the balance ASI provides.
    Anonymous