CUs Urged To Rethink NCUSIF, 1% Deposit

Credit Union Journal Daily Briefing  |  Friday, October 1, 2010

SAN ANTONIO – A provocative challenge has been made to credit unions when it comes to their deposit insurance fund.

John Annaloro, president of the Washington CU League, said many of the rules NCUA has in place for the National Credit Union Share Insurance Fund, along with PCA, helped contribute to the losses the fund has seen as the result of both the corporate meltdown and the failure of hundreds of natural-person credit unions. “The NCUSIF withstands systemic shocks very, very poorly,” said Annaloro. “Someone keeps changing the definition of what deposit insurance means. There’s mission creep here. It has gone from protecting deposits to protecting reputational risk. There is insufficient elasticity in the safety net.”

Annaloro called for a fresh start that would include looking at how other countries structure their deposit insurance coverage, and that credit unions consider a “switch away” from the 1% on deposit model CUs currently use to fund the NCUSIF in favor of the FDIC model. “(The 1% deposit) was OK in the day when all CUs were basically savings clubs that didn’t do much. But now they are more sophisticated, with downstream operations, and there is an unfair imposition of loss exposure.”