FEDERAL WAY, Wash. - With a congressional bill to raise Federal Deposit Insurance Corporation coverage for banks waiting in the wings to be introduced, the Washington Credit Union League has asked NCUA Chairman Norman DAmours to investigate increasing sharedraft insurance for CUs. House Banking Financial Institutions & Consumer Credit Subcommittee Chair Marge Roukema (R-N.J.)recently announced plans to introduce legislation to double FDIC deposit insurance to $200,000. Her plan would also index the insurance limit to inflation to eliminate the need for future amendments. The congresswoman is open to including credit union insurance language to her bill, though the measure is largely banker-driven. "We believe that increasing FDIC insurance without a comparable change to NCUSIF would put credit unions at a distinct disadvantage to banks and thrifts in the marketplace," said WCUL President/CEO John Annaloro. FDIC Chair Donna Tanoue has also begun a review of the bank deposit insurance system and has promised to recommend changes to Congress. Although a change would require congressional action to amend the Federal Credit Union Act, the WCUL believes it would be logical to pair such action with similar actions initiated by the Treasury Department for all insured financial institutions. Annaloro's letter is part of a broader WCUL initiative to advocate for incentives for CU depositors to save their money. "This is just one of several critical actions that may be necessary to retain a sufficiently large credit union savings base, given the possible problems caused by savings outflow, and/or increasing demand for loans within the existing membership structure," Annaloro said, in a letter to CUNA President Dan Mica. Other incentives include liberalizing Independent Retirement Account (IRA) regulations, exempting savings account income from federal and state taxation, and allowing credit unions to have uninsured deposit programs, a topic Annaloro has addressed in the past. For IRAs, he proposes eliminating income caps on IRAs, increasing contribution limits, allowing catch-up contributions and greater flexibility for unlimited penalty-free withdrawal for education, elderly care and medical expenses. Earnings from tax-exempt savings programs created with after-tax consumer dollars should be free from state and federal income taxes. "Ultimately, this may be the most important element in restoring the personal savings rate (and the virtue of thrift) in the United States," Annaloro said. A tax-exempt deposit account would be especially valuable in serving the needs of working families and give credit unions a product that can compete with other providers offering tax-exempt savings instruments, now estimated to be nearly $200 billion in tax-exempt mutual funds. Uninsured deposits, associated with secondary capital mechanisms, could be a way to pay higher dividends to savers and, at the same time, give credit unions an answer to the savings loss caused by high return uninsured alternatives offered by brokerages and other financial providers. Taken together, these actions could improve the competitive position of credit unions and the financial health of credit union members in the 21st century. -
mcintyre@viclink.com
