ALEXANDRIA, Va. — Patelco Credit Union President/CEO Andy Huntersaid the credit union's decision to convert back to federal depositinsurance is just another business decision made.

He explained that the world has changed and the $4 billiondollar credit union's business needs have changed along with that.“The trigger point was when the insurance coverage on IRAs changedfrom $100,000 to $250,000,” Hunter said, referring to the FederalDeposit Insurance Reform Act signed into law last year. The new lawincreased federal deposit insurance coverage through the FDIC andNCUSIF on certain individual retirement accounts while alsoallowing the insurers to increase coverage every five years.

However, the version of the Financial Services Regulatory ReliefAct that was signed into law around the same time did not includethe provision to permit privately insured credit unions to join theFederal Home Loan Bank system. This is an obstacle that Huntercited as a reason to switch back, in addition to some costsavings.

Finally, he said, while Patelco is not pursuing mergers forgrowth, the credit union is precluded because of its privatelyinsured status. Hunter said the smaller federally insured creditunions looking to merge are not interested in the extra hurdle of aconversion as well.

“Plusses and minuses–we've made another business decision to goback to federal,” he said.

NCUA Executive Director Len Skiles confirmed in an e-mail,“Patelco Credit Union, a state-chartered credit union headquarteredin San Francisco, Calif., has applied to the National Credit UnionAdministration (NCUA) for federal insurance coverage for memberaccounts through the National Credit Union Share Insurance Fund(NCUSIF).

“The application will be reviewed initially at the Regionallevel, and a determination of insurability will be made based onthe requirements set forth by NCUA Rules and Regulations.” Theauthority to approve the conversion rests with the region.

Hunter said the credit union is prepared and explained,“Certainly we expected to be approved or we would not be doingthis.”

The credit union, which has been cited numerous times by federalinsurance advocates as a concentration risk for American ShareInsurance, has been in contact with ASI through the process. ASIPresident/CEO Dennis Adams said that he has met with Patelco'sexecutives and board members and “They have a changing businessmodel and they have some changes they need to address…We supportthese choices.” He added, “This has nothing to do with thefinancial character or quality of either organization.” He said ASIis working with the credit union and has offered to cooperate withNCUA in the process.

The loss of its largest member will not be “a dramatic loss”financially for ASI, Adams said. Back in the 1990s when UnitedAirlines Credit Union left its flock, the fund recovered inrelatively little time.

“There is a positive side,” Adams commented: the concentrationof business in California will be alleviated. He emphasized that itwas Patelco's decision to leave, but “that is a favorableoutcome.”

The other silver lining is that anytime a member financialinstitution leaves, the equity ratio gets a boost. Adams estimatedthat ASI's equity ratio would jump from about 1.33% right now to1.42% if the conversion is approved.

When asked about the increase in federal deposit insurancecoverage, Adams said he is not sure if it will spark a trend.However, as circumstances change, he said, business choices change.“This is proof that choices are good.”

Right now private deposit insurance proponents and critics areduking it out in Washington State over whether or not privateinsurance meets the state statutory requirements, which has sparkedanew the controversy over private primary deposit insurance.

While Patelco's Hunter listed a few reasons in favor of theconversion back to federal insurance, he said about $500 million indeposits will become uninsured, similar to the amount uninsuredwhen it converted to private insurance, and Patelco does not planto subscribe to excess insurance. The credit union does have a planto notify members of the change in coverage through letters andpersonal contact.

The then-$2.8 billion Patelco caused a stir five years ago when,headed by former NCUA Chairman Ed Callahan, it converted to ASI.Patelco represents approximately a quarter of ASI's insured shares.At the time 61% of the voting membership voted in favor of theconversion. Conversion requirements to move to federal insuranceare up to the state regulator. The California Department ofFinancial Institutions had not responded to inquiry as of presstime.

NAFCU, an opponent of private primary deposit insurance, helpedlight the flame under the controversy five years ago and again inWashington State this year. A spokesperson said, “NAFCU believesthat shares backed by federal insurance is the best means toprotect members' savings because it is backed by the full faith andcredit of the United States government.”

CUNA declined to comment and NASCUS only stated, “Choice ofinsurance…is one of many business decisions credit unionsmake.”

–[email protected]