SANTA ANA, Calif. - If it's true that timing is everything, then an initiative being undertaken by some state-chartered credit unions to rethink and recreate credit union share insurance for state-chartered credit unions may be right on time. The seed for the exploration of an alternative insurance option to the National Credit Union Share Insurance Fund for state-chartered credit unions and the creation of a national private insurance fund was first planted in March at the Western CEO Roundtable Meeting. It germinated and came up for discussion again last month at the National Roundtable Meeting. At the heart of the issue, explained Rudy Hanley, president/CEO, Orange County Teachers CU and a member of the Roundtable is the unlimited reach of the NCUSIF and whether the lack of insurance options other than NCUSIF available to state-chartered credit unions, diminish the effectiveness of the dual-chartering system. Speculation has also been bandied about that the regulatory reach of the NCUSIF is a crucial motivating factor behind the flight of federal credit unions to state-charters in recent months. "If you're a federal credit union converting to a state charter, you're still under the regulatory insuring power of NCUA," said Hanley. "To have a true dual-chartering system, state-chartered credit unions have to be able to get insurance somewhere else other than NCUSIF." Another way to look at the issue, Hanley continued is to consider that, "Federally insured state-chartered credit unions that converted from a federal charter actually end up with two regulators - the state regulator and NCUA, as the keeper of the NCUSIF. So instead of converting and there being less regulation, they have to deal with more regulatory authority." These are some of the issues a team headed by Gordon Dames, president/CEO, Mountain America CU in Salt Lake City will be addressing in the coming months. To underscore the urgency of the situation, Dames mailed a "Call to Action" letter May 25 to Roundtable credit unions concerning recreating credit union share insurance. "The continuing flight from the federal credit union system is an issue of concern to the entire credit union community," wrote Dames. "Field-of-membership restrictions are not the sole cause of this erosion, of equal or greater concern are the limits set on the evolution of every NCUSIF insured credit union by the NCUA." Dames asked each Roundtable credit union to contribute $1,000 to help cover the costs of the team's research and efforts. Among the many issues on the task force's plate, one that is not on their list, is the success of NCUSIF. Created in 1984, NCUSIF has seen unquestionable success compared to other federal insurance funds, including the FDIC (Federal Deposit Insurance Corp.) and FSLIC (Federal Savings & Loan Corp.). According to NCUA, NCUSIF has paid dividends in excess of $500 million to its credit union owners over the last five years. The flip side of that success however, is that NCUA charges 50% or more of its total operating expenses to NCUSIF. That's amounted to more than $250 million over the past five years. These "administration" costs are expected to exceed $60 million in fiscal year 2000. Coupled with that is the fact that no insurance losses have been charged to the fund for the same period in time. Furthermore, given the Prompt Corrective Action (PCA) provisions approved by NCUA as required by H.R. 1151, the prospect that any credit union would have to dip into the NCUSIF is highly unlikely, said Doug Duerr, president/CEO of NASCUS. "This raises serious questions about the expense state-chartered credit unions are incurring to support the NCUSIF," said Duerr. What about the opportunity for state-chartered credit unions to be insured with private insurers such as American Share Insurance (ASI)? Only eight states allow credit unions to have private insurance - Ohio, Indiana, Illinois, California, Nevada, Idaho, Alabama and New Hampshire; 32 states require state-chartered credit unions to use federal insurance. "ASI is not going to march into a state regulator's office and demand they allow state-chartered credit unions to be privately insured," said Nick Damopoulos, vice president, ASI. "It's up to the credit unions to approach the regulator and ask them to consider private insurance." Commenting on the task force's investigation into the feasibility of an alternative to NCUSIF, Damopoulos described it as "commendable, it's good to have options" and said he hoped ASI would be included in the review process. As Dames explained in his letter, "a national private insurer would allow state-chartered credit unions the flexibility they need to be successful." Among the six advantages of private insurance he listed were: * alternative capital options; * expanded business authority; * increased CUSO options; * enhanced investment authority; * greater field-of-membership options; * increased member account insurance up to $500,000. In addition, said Dames, "National private insurance would also curtail the NCUA's pervasive impact and the dual regulations that state-chartered credit unions are not subject to." Dames' team expects to develop its action plan over the next 90 days, as of May 25. -
ekingoff@cutimes.com
