In the March 1985 issue of Credit Union Magazine, the writer of the monthly Capital Events column raised a critical industry issue following the successful recapitalization of the NCUSIF in January.
The concern was whether a stronger, more efficient, cost-effective NCUSIFcould put the private share insurance options out of business.
One CEO of of a private insurer said No. The changes at the NCUSIF will just lead to healthy competition, and that will be good for everyone.
A Vital Industry Resource
NCUA believed a strong group of private insurers was a vital industry resource. They saw it as a check and a spur for Agency oversight. “The NCUSIF is where it is today because the private insurers showed what could be done. Without them, the NCUSIF could stagnate and credit unions would be left without a viable alternative,” said Chip Filson, Director of the Office of Programs.
At March 1985 there were 15 state chartered guaranty corporations insuring $15.5 billion or about 17% of total credit union savings. Several pre-date the NCUSIF, but most were chartered in the early 1970’s. They covered about 40% of state charters.
The writer lists events raising the issue of federal deposit insurance sufficiency. These included large bank failures such as Penn Square and Continental Illinois banks, the scrutiny from the Bush Task Force on Financial Regulation and the FHLB’s request for a special $10 billion assessment for the S&L industry’s fund, FSLIC.
An Option to Backstop the Funds
Because of the NCUSIF legislation, the credit union insurance options were not the primary concern in DC. However, the NCUA had reached out to the private insurers with an option should there be a public crisis of confidence in deposit insurance. Specifically, the CLF offered a low-cost liquidity line of credit to the 15 insurers collectively. Draws supporting a credit unon which would be collateralized by the credit union’s assets and a joint and several guarantee by all the funds. It would give the private funds the same liquidity options that the CLF had for the NCUSIF.
The article closes with the note that the private fund’s trade group (ISD&GA) was considering the proposal. The writer concludes: How the group responds may prove to be pivotal for credit unions and their insurers in the years ahead.
The insurance group did not take up the CLF’s offer primarily due to the joint and several support commitment for draws by an individual credit union or its insurance fund. The result was that political pressure at the state and federal level forced all but two of the funds to close their doors in subsequent years. These were not financial failures per se, but rather the lack of political support at the state level.
This article some 40 years ago is a case study of an inability to change or in the writer’s words, confident in the management and marketing skills to hold their own in the marketplace without altering the status quo.
Source: Credit Union Magazine, March 1985, oages 17-18, by Brooke Shearer)