ARLINGTON, Va. — In its recently submitted comment letter, NAFCUrallied around the importance of federal deposit insurance andurged Washington State regulators to reject private primary depositinsurance.

“While we recognize that secondary share insurance (i.e.,insuring shares above the ceiling provided under federal insurance)provided by private entities is important, NAFCU believes thatprimary share insurance should only be provided by the Federalgovernment,” NAFCU President/CEO Fred Becker wrote in his Aug. 7letter.

Without federal backing, he added, “NAFCU believes that primaryshare insurance coverage provided by private entities isfundamentally flawed and cannot adequately protect Americandepositors.”

According to Becker, American Share Insurance, the solesurviving private primary deposit insurer for credit unions doesnot have the backing of the federal government and no reinsurance.“For this very reason, the General Accountability Office in 2003doubted the ability of a private insurer's ability to 'absorbcatastrophic losses'” he wrote. Becker said primary depositinsurance should only be provided by the federal government.

In fact, Becker characterized private insurance as a threat tothe dual chartering system, a system that NAFCU said it “fullysupports.” He wrote, “Currently, state-chartered credit unionswhose shares are insured by the NCUSIF are subject to rigoroussafety and soundness regulations promulgated and administered bythe NCUA, but still enjoy charter options available to them understate regimes…NAFCU opposes significant alterations to the currentdual chartering and supervisory system. An option to maintainprimary share insurance with a private insurer is a significantalteration and one that threatens this system.”

ASI President CEO Dennis Adams questioned the germaneness ofNAFCU's comments during a regulatory process. “The dual insuranceprovision is already in the statute,” he pointed out.

Not having read the letter, but upon hearing excerpts, Adamssaid he saw Becker's remarks as an attack on the state charter ashe called from NASCUS' State Summit last week. “It sounds like themisuse of members dues and fees to attack the state chartersystem,” he stated.

No one from NASCUS was available to comment by deadline.

Demonstrating one of the key differences between the twonational credit union trade associations, CUNA has historicallybeen an advocate of choice. The group plans to submit a commentletter to the Washington State Department of Financial Institutionsas previously reported, but has not done so yet.

In his arguments against private primary deposit insurance,Becker cited former Federal Reserve Chairman Alan Greenspancommenting that federal insurance has aided stability in thefinancial markets. Becker also noted that privately insured creditunions are required by law to disclose to depositors that they arenot federally insured.

“The significant discrepancy between privately insured andfederally insured shares cannot be overstated. As such, NAFCUstrongly urges the WDFI to consider these factors in light of thepurpose of primary depository insurance: to protect our nation'sconsumers against devastating loss to their savings,” Beckerwrote.

He added that Colorado rejected private primary depositinsurance just four years ago as not “comparable” to federalinsurance and Washington's standard is even stricter, using theterm “equivalent.”

Adams remarked, “I don't know where you draw the line onequivalency.” He said when you look at examinations, diversity ofrisk, monitoring, and reassessment powers between ASI and NCUA theyare similar. ASI's losses per institution, he asserted, are runningless than NCUA's and the equity ratio at ASI is slightly higher.Obviously, ASI does not have the backing of the federal government,Adams acknowledged, but if that were a requirement for equivalencyit would make the authority for a private insurance option a mootpoint.

In an appendix to his letter, Becker said looking at the equityratio is not a fair comparison for the “proportionately equal”reserving requirement under Washington State law. “Additionalfactors, such as reinsurance, NCUSIF's ability to borrow $100million from the U.S. Treasury and up to $5 billion from the NCUA'sCentral Liquidity Facility,” herwrote, “must be considered tofairly and responsibly compare a private fund to NCUSIF and makethe statutorily required determination that the private fund holds“proportionately equal reserves.”

The second requirement in the Washington statute is adequatereserves and equivalent access to funds. Becker pointed out that ifthe NCUSIF's largest credit union failed, NCUA would have to assessa 0.40% premium to each credit union to restore a 1.2% equityratio; ASI on the other hand would have to assess member creditunions 3.58% of assets to bring it back up to 1.20%, which would“significantly damage many of the privately insured credit unions'net worth ratios.” Reinsurance should be a minimum requirement,NAFCU argued.

NCUA has also written Washington State opposing state charteraccess to private primary deposit insurance.

Becker also contends that ASI only provides insurance in eightstates with 86% of insured shares in four states–California,Illinois, Nevada, and Ohio–which demonstrates ASI's lack ofgeographic diversity as required in the law.

In addition, when determining equivalency, NAFCU recommendedrequiring a system of Prompt Corrective Action similar toNCUA's.

Finally, Becker highlighted that the current proposal inWashington State does not address involuntary termination.Federally insured credit unions are provided due process prior to afinal decision to terminate and after the decision is made membersare notified immediately and coverage is continued for one yearafter.

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