WASHINGTON -- Credit unions will see a temporary increase in deposit insurance coverage and be able to sell their troubled assets to the government under the bill passed 74-25 by the Senate last Wednesday.
The measure increases the amount of federally insured credit union and bank deposits covered by federal insurance from $100,000 to $250,000 through the end of 2009.
Credit unions won't be assessed a higher premium for the additional coverage. Instead, the NCUSIF will see an increase in its line of credit from the Treasury Department.
Increasing the amount of money that is insured was a vehicle to pick up more support for the $700 billion plan to authorize the government to buy the troubled assets from credit unions, banks and thrifts, as well as to increase consumer confidence. The recent publicity on bank, thrift and credit union closings has caused an increase in calls to the NCUA and local credit unions from consumers who are concerned about the safety of their deposits.
Although the NCUA administers the share insurance fund, only Congress can change the amount covered by it this year; under the Federal Deposit Insurance Reform Act of 2005, FDIC and NCUA were given authority to adjust the coverage levels based on inflation every five years.
At press time, the House--which had defeated a previous version of the bill four days before--was scheduled to take up the Senate-passed version on Friday.
Giving credit unions parity with other financial institutions was a top priority for recently sworn in NCUA Chairman Michael E. Fryzel. He spoke to lawmakers and their aides in person and by phone and was successful in one of his first major lobbying efforts on Capitol Hill. Fryzel also previously persuaded lawmakers to lift the cap on the central liquidity facility.
"Increasing federal insurance coverage for credit union members would send an important signal of reassurance at a time when confidence in depository institutions generally has been compromised by market events," Fryzel said.
CUNA and NAFCU also lobbied hard on the increase, including sending letters to lawmakers reminding them that most credit unions did not engage in the practices that caused the current financial crisis.
CUNA President/CEO Dan Mica urged President Bush and all lawmakers to include a provision allowing risk-based capital for credit unions. He said the approach "would help credit unions better manage unexpected circumstances." However, the provision was not included in either the House or Senate version.
NAFCU President/CEO Fred Becker wrote lawmakers that the deposit insurance increase would "be an important step that can be taken as part of an economic stabilization plan to increase confidence in a time of crisis."
The fund to allow the government to purchase illiquid assets--the centerpiece of the legislation--was pitched by the Bush administration as the most efficient way to help troubled financial institutions get more capital so they could increase lending. But after a coalition of conservative Republicans and liberal Democrats helped torpedo the legislation in the House, senators added $150 billion worth of tax incentives to the measure so it would be more palatable to members, especially those facing re-election next month. All 435 U.S. House seats are up, as are 35 Senate seats.
Credit unions and banks obtained another of their wishes when lawmakers gave the Securities and Exchange Commission the ability to suspend an accounting practice that values assets at their current price, rather than at the price originally paid for them. The former is called mark-to-market accounting.
The possible changes in the amounts covered by deposit insurance come at a time when the NCUA and trade associations have been redoubling their efforts to reassure credit union members about the safety of their deposits.
The NCUA has sent color posters to each federally insured credit union to display including one with Uncle Sam pointing at the viewer and saying "This credit union is federally insured." Fryzel also sent a video to all credit unions urging their CEOs to reassure members about the safety of their deposits and to make use of all of NCUA's resources on the subject.
CUNA posted a video on its Web site (www.cuna.org) in which Mica explains the deposit insurance system and it issued a sound bite to radio stations across the country saying that almost all credit unions have federal insurance.
NAFCU has been including information about the coverage levels in all of its correspondence with members. The trade association has been urging member credit unions to have their members write to lawmakers to ensure that credit unions receive the same treatment as banks.