ASI is the last private primary deposit insurer. President/CEO Dennis Adams responded to NAFCU's comments, "I don't know where you draw the line on equivalency." He said when you look at examinations, diversity of risk, monitoring, and reassessment powers between ASI and NCUA, they are similar. ASI's losses per institution, he asserted, are running less 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 equivalency it would make the authority for a private insurance option a moot point.

Geographic diversity was a key sticking point in the Washington State law that the regulator and proponents of private insurance could not come to an agreement on. ASI operates in just eight states with the bulk of the insured assets in California and roughly a quarter at Patelco Credit Union. During the same time frame, the $4 billion credit union that caused a stir five years ago by converting to private insurance, told Credit Union Times it was moving back to the NCUSIF. Patelco executives explained that the decision was made primarily because of their changing business model and the increase in federal deposit insurance (see sidebar).

In fact, in the NCUA Board's letter to Washington's Division of Credit Unions, the federal agency, which also controls the NCUSIF, pointed out that an insurance fund is only as strong as its stress testing and that Patelco Credit Union, ASI's largest insured credit union, would deal a major blow to the ASI fund if a failure occurred there. Such a failure would impact all the privately insured credit unions the NCUA Board asserted and could damage member confidence in federally insured institutions as well. NCUA said a loss of 20% of insured shares by its largest credit union would result in a 0.67% equity ratio and 0.40% assessment for each NCUSIF-insured credit union; a failure of ASI's largest at $3.07 billion in insured shares, would bring ASI's equity ratio to -2.49% and require an assessment of 3.58% from each institution.

The NCUA Board did not specifically oppose the private insurance option but offered numerous, specific suggestions, many of which were adopted by Washington DFI.

In contrast, NASCUS came out in support of state's rights to adopt private deposit insurance regulations and said that it did not threaten the dual chartering system as Becker had stated. "Private insurance for credit unions is a state issue determined and approved by state legislatures. NASCUS believes in the rights and authorities of state legislatures to make decisions based on state law," President/CEO Mary Martha Forney said. However, she acknowledged that anyone wishing to comment during the public rulemaking process can do so.

CUNA, which typically does not get involved in state matters and leaves it up to the leagues, submitted a comment letter backing options. CUNA President/CEO Dan Mica wrote Jekel noting that banking groups often comment in opposition to expansions of credit union powers. He continued, "However, we are dismayed that some within the credit union system have failed to recognize what is really at stake in this rulemaking process–the viability of the dual chartering system and the ability of state regulators to effect independent, tailored decisions developed under a rigorous comment and review process."

In the end, the league individually and the credit unions jointly requested that the rulemaking process be temporarily halted in the interest of legislation changes and clarification. "While this process has been thorough and deliberative, we have come to the regrettable conclusion that legislative changes must be made to the statute under interpretation in order to produce a rule that both protects consumers and provides a reasonable framework for the operation of non-federal share insurance in Washington," WCUL Senior Vice President and General Counsel Stacy Augustine said.

In a subsequent interview, she explained, "There are some policy decisions that need to be made and we were putting our regulator in the position of making policy decisions that we really needed to be put back before the legislature." The final rule the agency was ready to put out, which took into account comments from interested parties, "was not a rule that any share insurer could meet," Augustine said.

In addition to the national geographic diversity provision, she said, a second sticking point was that with little guidance in the law, the rule would have required any alternative insurer to be registered with the state insurance commissioner, which did not have experience in dealing with this type of insurer.

The Washington Division of Credit Unions is still welcoming comments on the proposal.

Augustine noted that the Washington State regulator had been sued several times in recent years, highlighting the Columbia Credit Union fiasco, and was approaching this controversial rule in a conservative manor.

"A delay in rule making is not altogether uncommon, especially when dealing with complex issues," NASCUS President/CEO Mary Martha Fortney commented. "Throughout the process, the Washington Department of Financial Institutions has demonstrated a careful, studied approach to the issue. The agency's approach should instill confidence to all observing the process."

NAFCU's Becker reiterated, "NAFCU continues to believe that federal share insurance, administered through the NCUSIF, is the best safety net for credit union deposits. No other system is backed by the full faith and credit of the U.S. government."

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