<p>Don’t ever think that state and national credit union trade associations have an easy task carrying out their primary mission of representing their dues-paying members on an overflowing bushel basket of front burner issues that impact them. For one thing, it’s tough to get agreement at the staff, committee, board, and membership levels, individually and collectively, on what position to take on major credit union issues. This includes proposed legislation, regulatory additions or changes, and an assortment of industry-related controversial topics. Sometimes it is even harder to get consensus that the best position is to take no position at all. The current brouhaha over so-called deposit insurance reform, which has already sailed through the House (H.R. 3717) by an overwhelming margin, is a good case in point. When this issue first surfaced many months back in much more modest form, it seemed like it would be a no brainer on both the House and Senate side. Obviously members of the House of Representatives do like it, but it turns out a number of Senators are not nearly as enthusiastic about the proposed legislation as their House colleagues. It also appeared that the agencies directly or indirectly involved would greet the reform measures with open arms as would individual financial institutions and those representing them. After all, the higher limit would give consumers one more reason to do their savings and investing business with traditional depository institutions while enjoying increased protection from the federal government. At the very least, conventional wisdom concluded that it would be still another marketing tool. The proposal to boost individual account deposit insurance from $100,000 to $130,000 (or higher) is only the latest in a long line of increases dating back to the birth of deposit insurance in January 1934 at the astronomical amount of $2,500. Six months later it was boosted to $5,000 where it stayed for 15 years. In 1969, after increases to $10,000, $15,000, it reached $20,000, where it stayed until 1974 when it was doubled to $40,000. Six years later, it reached today’s level of $100,000 after a whopping $60,000 increase. Then the fun began. The savings and loan industry went crazy and bad management kicked in to start the beginning of the end. The generous protection of the federal government became to some S&L executives a license to engage in behavior that raised the bar on risk taking to ridiculous levels. No matter if bad decisions resulted in financial disasters. The federal government was right there to bail them out with taxpayer money. That word, “bailout,” soon became a household word as an entire industry vanished off the financial services industry’s radar screen seemingly overnight. Could history repeat itself? Probably not because valuable lessons were learned from the S&L bailout fiasco and more checks and balances have been put in place. On the other hand, why take the chance? Is an increase really needed? How many credit union members, for example, are currently at risk with $100,000 coverage that wouldn’t be with $130,000 coverage? But the increase will save so much money say supporters. For whom? $700 million for the government some claim. If true, one guess where that money would come from. Financial institutions will end up paying higher premiums. And where will this money come from? Same one guess. You can count on these higher costs ultimately being passed along to customers and members. Typical of government arithmetic, to get the projected $700 million in government savings will cost consumers (bank customers and CU members) several billions of dollars. One might conclude from this numerical fancy footwork that by not outright supporting deposit insurance reform, credit unions not only have the best interests of their members in mind, but actually all consumers. Pretty ironic isn’t it? Some claim that the increase is needed to keep community banks competitive with the octopus banks spreading tentacles nationwide. What a stretch. Others claim it must be increased simply because it has been over 20 years since it was last bumped up. Great logic! As readers can tell by now, I for one see no reason to increase the coverage. I see far more cons than pros. I don’t see the need, at least for credit unions. That’s why I applaud the position of the credit union trade groups which, of course, is not to take a position for or against. However, if deposit reform eventually passes and $130,000 becomes the law of the land for all other depository financial institutions, then and only then is it time to demand that credit unions be included in order to stay competitive. They have already laid the ground work. That’s exactly the approach CUNA and NAFCU are taking. I applaud them for it. There are many more important things on the credit union wish list that require the attention of credit union lobbyists and credit union political action funds. It would make little sense to expend political capital on something like deposit insurance reform when there are so many more important issues on the table that would benefit credit unions and their members so much more. By the way, as deposit reform sails into the Senate where the seas are predicted to get pretty rough, one other aspect of that particular piece of legislation bears watching. Included among a potpourri of provisions is a proposal to merge BIF (Bank Insurance Fund) with SAIF (Savings Association Insurance Fund). Since both are already under FDIC, this could be cost effective. The credit union red flag is the ever-present danger that congressional leaders get carried away and decide it would make sense to also include the NCUSIF (National Credit Union Share Insurance Fund) in merger plans to make one big fund. Not a good idea! Credit union leaders strive to do those things that are best for credit union members. Increasing deposit insurance to $130,000 is not one of those things. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]</p>

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.

Already have an account?

Peter Westerman


Credit Union Times

Join Credit Union Times

Don’t miss crucial strategic and tactical information necessary to run your institution and better serve your members. Join Credit Union Times now!

  • Free unlimited access to Credit Union Times' trusted and independent team of experts for extensive industry news, conference coverage, people features, statistical analysis, and regulation and technology updates.
  • Exclusive discounts on ALM and Credit Union Times events.
  • Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.

Already have an account? Sign In Now
Join Credit Union Times

Copyright © 2023 ALM Global, LLC. All Rights Reserved.