WASHINGTON-NASCUS went on a fact-finding mission Nov. 12 todiscuss with Federal Deposit Insurance Corporation Board MemberThomas J. Curry, a former NASCUS member and Massachusetts bankingregulator, insurance options for credit unions. “Tom Curry has beena longtime member of NASCUS and supportive of our initiatives tostrengthen the state system,” NASCUS President and CEO Mary MarthaFortney explained. “We had a very pleasant meeting and a candidconversation about issues of importance now facing credit unions.We discussed how the FDIC works with the state system and balancesinsurance with state regulatory functions.” Among the topics ofdiscussion were NCUA rulemaking, including the proposed regulationson credit union conversions to mutual savings banks and terminationof federal share insurance, federal preemption of state law, havingstate representation on the NCUA Board, risked-based capital andvarious options for alternative capital for credit unions, and theBasel II capital standards requirements. In response to news of themeeting, NCUA Special Assistant to the Chairman and Director ofExternal Affairs Nick Owens commented, “NCUA encourages informationsharing with other federal agencies. NASCUS represents stateregulators and clearly has the opportunity to meet and discussfinancial regulatory issues with federal financial regulators.”“For our discussion on FDIC insurance, I wanted to get a sense ofcomparison, relative to the NCUSIF,” State Employees Credit UnionCEO Jim Blaine said. “We talked of the relative cost of coverage,how they treat capital-the FDIC has recognized Risk Based Capitalfor 12 years- and also about their specialized examiners. The FDICis familiar with a very broad range of institutions of all assetsizes, from very, very large to small community banks.” He pointedout that the law governing FDIC insurance does not specificallyrule out credit unions' eligibility. “The statute calls forinsuring `depository institutions' and goes on to define them asbanks, thrifts and so on,” he said. “Credit unions are notmentioned. The FDIC General Counsel has not issued an opinion onthe matter, either.” However, he admitted, at this point it appearsthe law would not permit credit unions into the FDIC fund.Administrator of the Credit Union Division for North CarolinaJerrie Lattimore emphasized, “Our talk about FDIC insurance wassimply a fact-finding effort. As a state regulator with a verylarge credit union that is interested in exploring options, I feelit was my duty to learn all available information. In a system withone insurance choice, people are always going to seek out otherpossible options. There's nothing wrong with that.” Blaine said hehas been looking at the FDIC as an option for about six to ninemonths now. He added that for the last 10 years, State Employeeshas compared its capital under FDIC requirements and met them everyquarter. Using FDIC's capital standards, State Employees stands at12%, according to Blaine. “There's no question of the safety andsoundness of the funds. It is the underlying valuation of capitaland so forth that are a concern to us,” he said. There are a numberof advantages to FDIC insurance, he said. Blaine noted there isprominent brand recognition, and the FDIC risk-weights capital andnearly all banks use alternative forms of capital. In addition, theinsurer has experience with a number of different types offinancials from cooperative banks to mutuals to industrial loancompanies, as well as a various sizes of institutions. There are anumber of driving forces behind the issue, Blaine said. First isenhancing the dual chartering system and maintaining the integrityof state regulators. Additionally, for State Employees, it is a“fiduciary responsibility,” he explained. “It's an equal product ata lower cost, we are obligated to look at it.” FDIC would becheaper for the $12 billion credit union because well-capitalizedinstitutions do not pay premiums right now. Blaine's credit unionhas $100 million sitting in the NCUSIF, he said, not earninginterest for a loss of potentially $2 million a year at currentrates. Rates are rising and that could mean more losses forpotential income on those funds. Finally, an ongoing factor is theoverhead transfer rate. Blaine charges that NCUA has yet to makethe OTR setting process “transparent” for state charters. “Outsideindependent assessment is prudent for all organizations.I'm willingto be convinced it's wildly fair,” he said, “but I'd like to seeit.” The NASCUS delegation also discussed the various councils fromwhich FDIC gleans “industry-specific” information. “We wondered ifthere was some way for the NCUA to consider having such advisorypanels, without it seeming like a conflict of interest. Manyfederal agencies have similar advisory councils,” Blaine stated.Blaine said he does not foresee long-term problems for the NCUSIFif credit unions did become eligible for the FDIC concerning amerger of the funds. NASCUS' Fortney added, “NASCUS policy andposition on the.NCUSIF has always been consistent. We support whatthe states authorize their state chartered credit unions to do withregard to share insurance. And, we do not favor merging the NCUSIFwith any other bank insurance fund.” NASCUS conducts meetings withother financial agency officials and staffers on an ongoing basis,in an open and collaborative style, she said. “We represent theinterests of our members faithfully and advocate for a safe andsound credit union system,” Fortney added. NAFCU and NASCUS agreedon maintaining the NCUSIF's independence and keeping it withinNCUA. “NAFCU remains a staunch supporter of the National CreditUnion Share Insurance Fund. In fact, the creation of an independentinsurance fund to meet the needs of credit unions was one of thereasons why NAFCU was founded in 1967.” NAFCU President and CEOFred Becker stated. “We have steadfastly lobbied for the continuedindependence of NCUSIF and will do so in the future.We believe theNCUSIF should remain a part of NCUA, and its current financingstructure should be preserved. We would oppose any efforts toseparate the NCUSIF from NCUA.” NAFCU has previously stated thatall credit unions, “regardless of charter type,” should have tomaintain primary federal insurance. However, NAFCU Vice Presidentof Communications Jay Morris stated that the trade association didnot anticipate credit unions looking to the FDIC for insurance andwould have to formulate a policy position on this [email protected]