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DUBLIN, Ohio -A member of Patelco Credit Union looking for more information on the differences between federal and private share insurance led to a minor squabble between NCUA and American Share Insurance on whether or not shares insured by the National Credit Union Share Insurance Fund are indeed guaranteed by the federal government. The member was unsure of information he received from American Share Insurance (ASI) stating that the NCUSIF is not guaranteed by the federal government. The $2.8 billion Patelco, San Francisco, recently received member and regulator approval to convert to private share insurance, making it the largest such CU to do so. When the member pursued the matter further with NCUA, the member discovered that ASI Vice President of Finance Curt Robson was mistaken in his assessment. ASI is of course providing Patelco with the private share insurance. The Patelco member’s question was essentially this: How can ASI insure credit unions larger than its total assets? That question led to a discussion about the federal guarantee of funds insured by the NCUSIF. Robson replied via e-mail, “In essence, all insured credit unions have agreed to provide all or a portion of their net capital, if necessary, to pay claims. This is the same methodology used by the federal insurance program for credit unions; there is no government guarantee behind federal insurance, although the National Credit Union Share Insurance Fund, the federal credit union insurer, can borrow up to $1.2 billion from the U.S. Treasury, after it has depleted the net capital of all of its insured institutions in its efforts to pay claims.” In reality, an act of Congress can provide additional funds in the unlikely event of massive failure. When this response did not seem quite right to the Patelco member, he asked NCUA to give its opinion. As a result, NCUA General Counsel Bob Fenner wrote a letter to ASI President Dennis Adams pointing out the misstatement and requesting a correction. “As provided in the Competitive Equality Banking Act of 1987, 901, credit union shares insured by the National Credit Union Share Insurance Fund (NCUSIF) are backed by the full faith and credit of the United States government. P.L. 100-86, 901; Massachusetts Credit Union Share Insurance Corporation v. National Credit Union Administration, 693 F. Supp. 1225, 1230-31 (D.C.D.C. 1988).” the attorney wrote. “We also request that you inform all ASI employees who discuss share insurance with members of the public that credit union shares insured by the NCUSIF are guaranteed by the United States.” “To the extent that this is the exact phrase used,” NAFCU President and CEO Fred Becker commented, “it is a pretty egregious misstatement that shows a basic misunderstanding of the National Credit Union Share Insurance Fund. I think NCUA responded appropriately, particularly when 80 million members of federally insured credit unions might have a certain impression when they see the decal at their credit union that says `Your savings federally insured to $100,000 [by] NCUA . a U.S. Government Agency.’ ” Adams admitted that Robson’s statement was “ far too aggressive,” and a correction was sent to the credit union member and NCUA. Robson’s correction read, “The statement.was made in the context that the specific sources of funding claims losses to the NCUSIF that are written in the Federal Credit Union Act (FCUA) are the credit union’s net capital and [Treasury and the Central Liquidity Facility]. I was remiss in not further stating that if additional funding would be needed beyond those levels of funding, a request for such funds would have to be presented to the U.S. Congress for their approval, a scenario that has never been `tested’ in federal share insurance for credit unions.” Because of the confusion the Patelco member was led to take a second look at the ballot for guidance and found the language there ambiguous. It read, “The private insurance provided by American Share Insurance is not backed by the full faith and credit of the United States Government as is the federal insurance provided by the National Credit Union Administration.” The member suggested the ballot be reworded and discarded. However, Patelco has not heard directly from this particular member or a similar complaint. According to Patelco Senior Vice President Anita Macias, the credit union has received a few complaints that the language of the ballot was biased against converting to private insurance. NCUA regulation “prescribes the language of the ballot,” Fenner explained. It reads, “The insurance provided by the National Credit Union Administration, an independent agency of the United States, is backed by the full faith and credit of the United States government. The private insurance you will receive from American Share Insurance is not guaranteed by the federal or any state government.” Macias said a handful of Patelco members had complained that the language was too negative. Fenner responded that it is important that the members understand the implications of leaving the federal deposit insurance system. “Personally, I think that’s an important point that needs to be made,” he said. [email protected]

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