March 24, 2003


  • Mr. Filson Your article on the choice of private deposit insurance was very interesting and in theory I do agree with you on the issue of choice. For example I served on the Michigan Act modernization committee even though we are a federal credit union. What concerns me about your article is that you did not address the issue of the current and future private insurance companies having the financial strength if several of the largest credit unions fail at the same time. The history of state and private insurance companies has not been all that positive. Nor did you discuss the issue of what the impact is on all of the credit unions if a private insurer fails. What will the members reaction be? Will they understand it was some small private insurance company, or will they perceive that their funds are at risk if it is in a credit union? A number of years ago we purchased excess deposit insurance for a period of years. When we took a long hard look at the finacials of the private insurer we realized that the failure of just the largest credit union it insured would cause the failure of the insurance company. in your article and other articles it appears that you make the assumtion that there will not be other private insurers who will enter the market. Additional companies may have more or less financial strength than the current insurer. In your article you also do not address who will be assuring that a private insurance has the necessary financial strength to fullfil all potential claims. Will they have the resources and authority to assume control of the credit unions, develop work out programs and manage them? The news is full of insurance companies who are currently struggling to pay claims, and these are much larger insurers than existing or potential insurers in the credit union market. How is the credit union movement improved by credit unions seeking insurance from a private insurer? Do we have more or less reputation risk with a private insurer? What is the reward or payoff to an individual credit union or the credit union movement? I am all for choice, but I do not see the benefit when examing the private insurer on a risk/reward basis. I would change this position if you could somehow convience me that the current and future insurers will have the financial strength to pay all future claims and mangement know how and resources if we have another period when financial institutions are failing at a high rate like we did in the past. If you wish to discuss this please do not hesitate to contact me at 1-517-333-2200 or Sincerely Patrick M. McPharlin President/CEO Michigan State University FCU