Washington State Eyes Private Deposit Insurance
OLYMPIA, Wash. -- The regulator in Washington State, at the behest of a handful of credit unions and the state league, has begun the process to study private primary deposit insurance for credit unions and its applicability within state law.
In July, Washington's Department of Financial Institutions announced that it would begin looking into changing its regulations to codify the law, which permits state-chartered credit unions to use a private primary deposit insurer. American Share Insurance is the sole remaining private primary deposit insurer since most of them closed their doors after the Rhode Island Share and Deposit Indemnity Corp. failure due to embezzlement.
"I think they have a strong, independent attitude up there and they like to have their choices," ASI President and CEO Dennis Adams said. He said his organization has met with between five and eight credit unions that have expressed some interest in their product so there "appears to be some demand."
In a letter to the state's credit unions, Director of Credit Unions Linda Jekel stated that the department had been "approached by several credit union executives and the league to inquire about whether the department would allow credit unions in this state to be insured by a private insurer."
"It has always been our position credit unions should be able to have a choice between federal insurance and private insurance," Washington Credit Union League Senior Vice President for Policy and Public Advocacy Stacy Augustine confirmed. "Choice is strength." League President and CEO John Annaloro noted that though there has been interest in the option, "that is different than having made a definite decision...I don't think any institution has made up its mind, which makes us unique." Adams and Annaloro both said they have not heard and do not feel the exploration by these credit unions is a move to get away from NCUA oversight. Annaloro highlighted that even though Washington has one of the most liberal state charters in the country, 59 of the state's 138 credit unions are federally chartered; NCUA requires federal primary deposit insurance of federal credit unions. Adams pointed out that Washington--as well as Texas and Maryland, which have added private insurance to their options in recent years--had private deposit insurers at the time of the RISDIC crisis in the early 1990s. Additionally, ASI's subsidiary, Excess Share Insurance that offers insurance over the federal level, has been operating in Washington for about a decade, he said, so the credit unions there may have a certain comfort level. According to Washington law, Jekel wrote, "An equivalent share insurance program is defined as one that (a) holds reserves proportionally equal to the federal share insurance program, (b) maintains adequate reserves and access to additional sources of funds through replenishment features, reinsurance, or other sources of funds, and (c) has share insurance contracts that reflect a national geographic diversity." The director will hold a hearing as part of the process and would have to make a finding that such an insurer exists. Adams said he would hope the Washington DFI would consider ASI's application.
To get the ball rolling, the department has filed a Preproposal Statement of Inquiry to notify interested parties that it is initiating the process of defining what is equivalent, establishing requirements for credit unions that wish to use private insurance, and identifying requirements for the insurer.
ASI, leading up to the inquiry to the state regulators, has served as an information source for interested credit unions explaining the process to them and the role of private primary deposit insurance and is now willing doing the same for the state regulator, Adams said.
Annaloro also explained that in Washington, the regulator has to offer up its findings to the state legislature for consultation. Washington State credit unions have already waited through an administration that did not favor the private insurance option, he said.
Since the state assembly is out right now and the inquiry is just beginning, it will likely be spring of 2008 before the option could be available. Then, Adams said, the process of converting from federal to private insurance typically takes about four to six months. He added, "We work hard to educate people and help them comply with NCUA's rules and regulations." NCUA's Part 708B he said governs the insurance conversion process.
And while these interested credit unions in Washington may not be running away from NCUA, they may be heading toward something. ASI's contract for insurance allows for--if permitted by state law--member business loans to one entity of up to 20% of the credit union's net capital rather than NCUA's 12.25% of assets.
Texas just began allowing private deposit insurance for its state chartered credit unions this summer. According to Adams, ASI has been in talks with some Texas credit unions "forever" but really got down to business in January. So far, none have joined ASI yet, he said. ASI also currently operates in Alabama, California, Idaho, Illinois, Indiana, Maryland, Nevada, New Hampshire, and Ohio.
A few years back, ASI failed to make inroads into Colorado when the regulator rejected the insurer as not falling within the state statutory description of a permissible private insurer. There has since been an administrative change, but Adams said ASI has not been asked since to help begin preparatory work there.