Recently senior NCUA executives and board members
and NAFCU have been throwing stones at the primary private insurer,
ASI. In discussions at CUNA's GAC, communications with the Colorado
Commissioner and interviews with the media, NAFCU and NCUA representatives
have been quoted questioning the value and stability of private
This has been done with a goal of mandating NCUSIF
insurance for all credit unions. The efforts have even been extended
to lobbying the Consumer Federation of America to endorse their
No one would argue the right of NCUA or NAFCU or a
credit union to advocate NCUA insurance. For many it is an important
relationship. The issue arises from their desire to mandate this
solution for all credit unions. Therein lies the problem. For in
advocating what they believe is a better solution, their efforts
could end up eliminating any credit union choice.
But first a caveat about the nature of the discussions.
In virtually all of the interviews, the speakers reference the private
insurer's problems in Rhode Island in 1991. In doing so they do
not address ASI's exemplary track record but rather try to associate
it with an unrelated case 12 years ago. An analogy would be to say
that the NCUSIF today is in the same position as FSLIC was in 1988.
This was just before Congress passed FIRREA which ended the independent
existence of both the FSLIC and the Federal Home Loan Bank Board
as the combined regulator/insurer of the thrift industry.
These tactics to sow fear and uncertainty by federal
regulatory personnel and a credit union trade association to advance
their point of view can only raise concern about their motives,
let alone the logic of their position. It is important to remember
that the last big credit union insurance problem with losses to
members was not from a private insurer, but the NCUA's role in Capital
Corporate FCU's demise.
Why Mandating NCUSIF Insurance Is a Wrong Policy
Let's follow NCUA/NAFCU's logic in trying to mandate
federal insurance and eliminate choice. First, let's postulate that
this occurs. Then the unique structure of the NCUSIF with the withdrawable
deposit no longer makes sense, the accounting for the 1% deposit
as an asset becomes questionable and whatever leverage credit unions
hold with NCUA about the use of insurance fund reserves becomes
even more tenuous. The fact that choice exists and that a credit
union can choose another insurer what provides legitimacy to the
whole legal and accounting structure of the NCUSIF.
But let's continue. The only way to mandate federal
insurance is to have Congress pass legislation. Legislative vehicles
to accomplish this exist. For example, Congress is working on legislation
to raise FDIC insurance coverage to $130,000 and to combine the
BIF and SAIF funds now managed separately by the FDIC. There is
widespread bank and thrift support for the bill. The NCUSIF is not
included. So goes the logic, let's get NCUSIF coverage equal to
the FDIC and slip in an amendment requiring NCUSIF for all credit
unions at the same time.
The Endgame: One Insurer=FDIC
But that is not what would likely happen. State chartered
credit unions and their regulators would demand choice. The only
option remaining would be FDIC. Congress, which has a lot of other
issues to worry about including war and an exploding deficit, would
take one look and ask why there are two funds with exactly the same
coverage and a potential government liability? Why not have one
federal insurer-the FDIC.
Congress' logic would be compelling: the FDIC has
the expertise, diversity of insurance risk across three charter
types, ten times the assets of the NCUSIF and the history and confidence
of the rest of the regulatory community including the Federal Reserve
Board. The supporters of one government fund-FDIC- ( and against
a choice for credit unions) would use the same arguments that NAFCU
and NCUA are using when they say credit unions should not have insurance
Many credit unions would be inclined to support the
logic of only FDIC because it would preserve elements of choice
not available under an NCUSIF mandate. Moreover for state charters,
all of the nagging issues of transfer rates, NCUA salaries, operating
fees and NCUA regulatory overreach go away in one fell swoop. NCUA
becomes a regulator only, with no role for credit unions opting
for FDIC coverage.
The logical endgame of NAFCU and NCUA's position is
to mandate FDIC insurance. Congressional staff and the GAO will
quickly point out that solution the instant the issue of mandating
NCUSIF coverage is raised. CUNA supports choice and that could mean,
at a minimum, an FDIC option for state charters. NASCUS would undoubtedly
do the same.
Why Throw Stones?
So why are NAFCU and NCUA pushing this issue. Is it
fear or greed? Is NCUA really worried about a flight from the NCUSIF?
One can understand NAFCU's need, as a trade association,
to create a wedge issue. NAFCU has lost membership through the massive
conversions from federal to state charter. With credit union membership
only in the hundreds out of almost 6,000 federal charters, they
have an enormous credibility problem compared to CUNA's representation
of all federal and state credit unions. NAFCU's inability to affect
the climate and direction of federal regulatory policy resulting
in loss of members has left them only one option-putting everyone
under NCUA's sway.
NCUA's motives may be less clear. Why should they
worry about conversions to private insurance if they really believe
NCUSIF is better? Or is it possible that the accumulated weight
of the Agency's expenditures and low interest rate environment are
going to cause a premium this year to maintain the 1.2% ratio. (see
October 2001, July 2002 articles) Do they want to eliminate options
before assessing a premium so credit unions cannot exercise choice?
What NAFCU and NCUA Can Do
We don't know the answer. But if their concern is
really genuine about members who are privately insured and therefore
have no recourse to the federal treasury, then there is one easy
way for them to show their true colors on the core issue-if that
The largest amount of uninsured shares is not with
ASI, but in NCUSIF insured credit unions. According to the December
2002 call reports there is $43 billion of shares with no insurance
coverage ( that is above the $100,000 per member limit) in 6,201
natural person credit unions. In addition there is $87 billion in
the corporate system for a total of $130 billion in funds not in
any way covered by the NCUSIF.
The NCUSIF credit unions are not required to make
any proactive disclosures about these funds which have no insurance
or government backing of any kind. If the NCUA board and NAFCU really
believe disclosing the lack of federal backing is important, they
can start today with a requirement that members be told these funds
"are not federally insured and if the institution fails the federal
government does not guarantee that any depositors will get their
If that wording sounds familiar, that is what is disclosed
already, every day, to privately insured credit union members.