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ARLINGTON, Va.-In NAFCU’s 2002 annual meeting with the Federal Reserve Board, the organization presented a report that showed federally insured credit unions are working diligently to expand services to their members and also raised the issue of private insurance. NAFCU’s Board met with Fed Governor Mark Olson last Friday. According to NAFCU’s report, credit unions are bringing their offerings up to speed with the 21st Century marketplace. Not only are many providing first mortgages (44.4%, with 100% doing so in the $500 million and up in assets category), but credit unions’ online services continue to flourish. Nearly 47% of all credit unions have Web sites, NAFCU found, while 99.1% of credit unions with assets of $500 million and up have them. Additionally 34.5% of all credit unions offer credit counseling and 19.3% offer guaranteed student loans. Of federally insured credit unions, 24% to 48% indicated on their 5300 reports that they provide either online account balance inquiries, account transfers, share draft orders, view account histories, download account histories, and/or loan payments. Those offering these services represent 93.8%, 92.6%, 77.3%, 34.8%, 25.8%, and 38.4%, respectively, of federally insured credit union assets. Though just 33% of federally insured credit union members use the Internet for financial services, they represent 86% of the aggregate assets, NAFCU said. Many credit unions also avail themselves of Federal Reserve Services. In particular, NAFCU members used the Fed’s Functional Cost Analysis only (93.8%), Bond Coupon Collections only (93.2%), and automated clearinghouse processing (90.5%) exclusively. The majority, 72.5% labeled the Fed’s pricing either `very competitive’ or `competitive.’ NAFCU also dedicated an entire section of its report to “Current Issues Concerning Credit Union Share Insurance,” which it characterized as a hot topic of discussion among the credit union community since the application of $2.9 billion Patelco Credit Union, America’s 11th largest credit union, to convert to private insurance. NAFCU, a strong proponent of the federal insurance system, noted that Senate Banking Committee Chairman Paul Sarbanes and Federal Reserve Chairman Alan Greenspan have both expressed negative thoughts recently toward private insurance. “No private insurer would ever be able to match the actual [Federal Deposit Insurance Corporation] premium and cover its risks,” NAFCU quoted Greenspan as saying earlier this year during a Senate Banking hearing. NAFCU explained that there are several layers of cushioning enjoyed by the federal insurer, which are not necessarily present with a private insurer. First, there is an aggregate $52.7 billion in net worth for credit unions to lose, before moving on to the National Credit Union Share Insurance Fund (NCUSIF). If the NCUSIF were to be depleted below its statutory requirements, NCUA could levy a premium. Historical premiums of 1/12 of 1% of insured shares in 2001 would have produced $361.2 million to soften the blow. The fourth protection for credit unions’ insured funds is the $1.2 billion the NCUSIF holds in retained earnings. Finally, there is the $3.8 billion deposited in NCUSIF accounts and invested in U.S. Treasury securities (credit unions’ 1% deposit). “To put these numbers into perspective, one need only compare the amount expensed for insurance losses by the NCUSIF in its entire 25 years of existence ($972.5 million) with the amount readily available to NCUSIF in retained earnings ($1.2 billion),” NAFCU’s report read. NAFCU continues to note the characteristics of private deposit insurance firm American Share Insurance (ASI) and how ASI’s equity ratio of 1.55% of primary shares ($110 million to cover potential losses) would cover only 5.3% of Patelco’s insured shares to $100,000. The percentage would be much less for the unlimited number of accounts-$250,000 per account coverage-that ASI offers, according to NAFCU. The trade group also retold the story of the failure of the $1.8 billion Rhode Island Share and Deposit Indemnity Corporation in 1991. However, NAFCU does point out that private insurance activity has been relatively slow with only 18 state laws permitting it and nine state regulators and one territory authorizing it, plus Colorado seriously considering it. NAFCU also laid out the credit union financial landscape for the Fed. Annualized asset growth for credit unions in 2002 is expected to surpass last year’s 14.4% expansion to reach 14.8%. The trade groups asserted that federally insured credit unions remained healthy through 2002, with an average net worth ratio of 10.7%. Federally insured credit unions also can expect an increase in return on assets and only marginal deterioration in asset quality. [email protected]

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