The NCUSIF’s 1984 Annual Report describes the founding actions positioning credit union’s Fund and the cooperative system for the future.
“Between July and October 1984, the NCUA board considered at great lengths how to implement the deposit plan. Every effort was made to listen to credit unions and their representatives, Whether by phone, letter or in person, communications were continuous, spirited and open. Because of this input, a very workable plan for all was reached when the board adopted final rules at its October 9, 1984 meeting to implement the capitalization legislation.
First, the board waived the entire 1985 insurance premium. Second, it ordered the distribution of $81 million in Fund equity. This amount constitutes the Fund’s equity in excess of the 1.3% fund equity insured shares ratio the board established for the Fund, once the 1% deposit was received. Because of these actions, credit unions will only have to transfer 85% to 90% of their initial deposit obligation to the Fund yet it can carry the full 1% asset on their balance sheets.
(Editor’s note: credit unions transferred only .89% of insured shares and were credited with 1%-the Fund’s first dividend)
Because of this legislative achievement by the credit union movement and the regulatory approach taken to implement it, the Fund contains some very advantageous structural improvements:
- The insurance fund will be fully capitalized at all times;
- Fund growth will automatically parallel credit union growth;
- Congressional concern about the Fund’s adequacy and the need to build public confidence in it will likely lessen. Future legislation will probably focus on the FDIC and FSLIC (which happened often);
- The numerous operating options within the new deposit plan framework provide future flexibility for credit unions and for the Fund;
- Credit unions will have a direct financial stake in the operation of their Fund.
In 14 years, members of federally insured credit unions have gone from the least well protected depositors in financial institutions to be the best protected.”
Source: National Credit Union Share Insurance Fund 1984 Annual Report, pages 6 and 7.
I remember clearly how excited and how proud I was in 1984 to see how innovative the leaders of our credit union network had been in designing a deposit insurance strategy that represented in design and function the very cooperative spirit of self help that we all stood for. Instead of hearing NCUA voices saying we need to look more like FDIC, Ed, Bucky, and you, ventured outside of the norm to identify a unique solution for our unique business model.
It’s past time to repeat that innovative process and look towards a redesign of deposit insurance that doesn’t mimic the for profit banks but rather leads the way to meeting the needs of the today’s consumer and credit union member with deposit insurance designs that provide choice for credit unions and their members.
Learn more about deposit insurance for the 21st century at http://www.cusochallenge.com.
It was very much a collaborative process. Credit unions did not like one, let alone two premiums. Catching up to the 1% then legal target would have taken years at the standard 8.33 bps premium rate, assuming no expenses or losses. It was the 16 or so cooperative insurance funds that designed this approach; it worked and made sense. Credit unions still had to support the legislation and that was the reason for A Better Way, series of dialogues with everyone. Also why the first dividend of 11 bps!
If I remember correctly we were in a period when most credit unions were awash in liquidity, which made the premium situation much more palatable.
No, the premium was an expense either 8.3 bps or double. Came right out of the bottom line. Cash flow was not the concern.