Credit Unions and ASI Insurance

[oneleaf]

I was tempted to join a credit union in CA awhile back, due to fantastic service, rates, and benefits, but decided against it when I found out it was privately insured by American Share Insurance, and not the NCUA.

Occasionally, I would reconsider opening a small account there, especially since as far as I can tell, ASI is a fine organization, and the member credit unions I have looked into seem to be very well-managed.

Before this financial crisis, I could imagine going with them, but now, do you think there is still a place in this country for non-federally insured credit unions? I'm still trying to understand the strong advocacy I see in favor of credit unions being allowed to choose private insurance.

Can anyone provide some insight into the advantages of private insurance, and whether it is still sensible to do business with a credit union that isn't federally insured?

[HueyLD]

I don’t know any CU that is not covered by the NCUA insurance. I personally will not put safe money in a CU that does not provide NCUA insurance. For me, safe money means 100% principal protection. In this highly leveraged economy, no private insurance is good enough to provide this guaranty, IMO.

However, I might entertain the idea of putting some funds in non-NCUA insured CUs as long as I treat such investments as uninsured bonds. I would only do so to gain additional returns and only for money I can afford to lose. I prefer to place my bets on the stock market.

[dm200]

I was tempted to join a credit union in CA awhile back, due to fantastic service, rates, and benefits, but decided against it when I found out it was privately insured by American Share Insurance, and not the NCUA.

Occasionally, I would reconsider opening a small account there, especially since as far as I can tell, ASI is a fine organization, and the member credit unions I have looked into seem to be very well-managed.

Before this financial crisis, I could imagine going with them, but now, do you think there is still a place in this country for non-federally insured credit unions? I'm still trying to understand the strong advocacy I see in favor of credit unions being allowed to choose private insurance.

Can anyone provide some insight into the advantages of private insurance, and whether it is still sensible to do business with a credit union that isn't federally insured?

After there were losses and delays in withdrawing funds from privately (not federal) insured or not insured credit unions in the 1980s, many (I think most) states required all state chartered credit unions in those states to have federal insurance (NCUA). Federally chartered credit unions have been required to be federally insured. A few states continued to allow state chartered credit unions to have the choice of federal insurance or private insurance. I believe ASI is the only private credit union insurer.

I believe the federal government could have required all credit unions to be federally insured, but chose not to do so. ASI and state chartered credit unions and the trade associations for state charters have all heavily lobbied for both state charters and for the option of private insurance. There is even some (small right now) push for the option of private insurance in states that do not allow it today.

I think the time is past for mandating all credit unions to have federal insurance. The risks are too high, in my opinion. When runs on privately insured credit unions cause problems to the system, or when failures of ASI insured credit unions put ASI at risk, then all credit unions suffer.

From what I know:

1. ASI is a fine, well run organization
2. ASI insured credit unions are just as well run, safe and sound as federally insured credit unions
3. The percentage of insured savings held in reserves by ASI is higher than the federal percentage.

Relating to #3, I still recall that in the 1970's, State chartered savings ald loans in some states had private (non federal) insurance. These institutions could pay a higher rate on savings in some states. Maryland was one such state. "Don't worry", the Maryland S&Ls said, "We as safer than FSLIC because we have a higher reserve ratio." I did not have any funds in a Maryland S&L when things hiot the fan. Some folks waited years to get their money. In some states, some folks had actual losses from private savings insurance for S&Ls and credit unions.

Some of the advocacy for private insurance is a sometimes justified distrust of the competence of federal government agencies.

Another factor motivating the ASI insured credit unions is the belief/hope/experience that the costs of insurance is lower and/or will be lower in the future.

I reluctantly have concluded that I would not place any significant amount of funds in a non-federally insured credit union.

Interestingly, in speaking with several folks who know this issue very well, there has been close to zero fuss raised over this, and members of privately insured credit unions have not complained in any significant way. The trade press has had ZERO articles on the issue.

[dm200]

To determine whether a credit union is federally insured, go to www.ncua.gov

Go to the upper right of screen, Data and Services, and click on the dropped down Find a Credit Union

Put in all or part of the name of the credit union, and if more than one appears, click on the correct credit union. In BIG RED LETTERS it will say federally insured it it is federally insured.

[oneleaf]

dm200,
Your explanations and insights are very helpful.

I have been surprised by the lack of press as well, and also impressed that the systemic risk we faced over the past year did not raise any flags or cause any panic among privately insured credit unions.

The few privately insured credit unions I know of in California seem to be very well run and have overwhelmingly satisfied members. The SF Fire Credit Union in San Francisco is one of them. But with the type of fear and panic that we experienced throughout the entire financial world in the past year, I can't help but believe even the most well managed privately insured CU would be concerned.

It is still hard for me to understand the advocacy for private insurance, but I suppose costs and a preference of steering clear of federal government agencies could be motivating enough.

Thanks for your response.

[Jack]

It is still hard for me to understand the advocacy for private insurance, but I suppose costs and a preference of steering clear of federal government agencies could be motivating enough.

That is the key question. Are there significant differences in the cost of federal and private insurance. Are there significant differences in regulatory requirements?

[oneleaf]

It is still hard for me to understand the advocacy for private insurance, but I suppose costs and a preference of steering clear of federal government agencies could be motivating enough.

That is the key question. Are there significant differences in the cost of federal and private insurance. Are there significant differences in regulatory requirements?

my understanding is that ASI does not act as regulator, so privately insured credit unions operate under the regulations of their state charter.

dm200, is that accurate?

I did read one CU's website which indicated that the costs of insurance was about the same between ASI and NCUA, but with ASI you get more ($250K primary insurance coverage per ACCOUNT), so someone with multiple accounts can be insured for well over a million dollars if they hold multiple accounts.

But then again, if it's privately insured, do you really want to take advantage of those higher limits?

One thing I'm curious but couldn't find information on, is whether the quality of the institutions insured by ASI are, on average, better than the average CU that is insured by the NCUA? Is there any information on how many bank failures ASI has had to deal with, compared with the NCUA?

[Jack]

The NCUA does have a federal backstop to help in crisis. This year the NCUA got into trouble because the credit unions' corporate sevicer got suckered into buying some of those so-called AAA rated securities. My credit union had to kick in more than $50 million last quarter to repay the insurance fund. The feds are allowing the payments to be spread over several years to moderate the impact, but at least the credit unions are paying their own way. It remains to be seen if the FDIC will ever recover all of their payouts to the banks.

[dm200]

It is still hard for me to understand the advocacy for private insurance, but I suppose costs and a preference of steering clear of federal government agencies could be motivating enough.

That is the key question. Are there significant differences in the cost of federal and private insurance. Are there significant differences in regulatory requirements?

my understanding is that ASI does not act as regulator, so privately insured credit unions operate under the regulations of their state charter.

dm200, is that accurate?

I did read one CU's website which indicated that the costs of insurance was about the same between ASI and NCUA, but with ASI you get more ($250K primary insurance coverage per ACCOUNT), so someone with multiple accounts can be insured for well over a million dollars if they hold multiple accounts.

But then again, if it's privately insured, do you really want to take advantage of those higher limits?

One thing I'm curious but couldn't find information on, is whether the quality of the institutions insured by ASI are, on average, better than the average CU that is insured by the NCUA? Is there any information on how many bank failures ASI has had to deal with, compared with the NCUA?

I have never seen an "objective" measure comparing federally insured state charters with ASI insured state charters. ASI, of course, claims they are best. With the increase of federal insurance to $250,000 - I don't think ASI insured credit unions have that "advantage" any more, although ASI says it is $250,000 per account.

While ASI is not a "regulator" the effect may be the same. ASI sends their folks into the credit unions to review safety and soundness, and so on. Part of the agreements for insurance require that credit unions maintain certain standards.

[dm200]

The NCUA does have a federal backstop to help in crisis. This year the NCUA got into trouble because the credit unions' corporate sevicer got suckered into buying some of those so-called AAA rated securities. My credit union had to kick in more than $50 million last quarter to repay the insurance fund. The feds are allowing the payments to be spread over several years to moderate the impact, but at least the credit unions are paying their own way. It remains to be seen if the FDIC will ever recover all of their payouts to the banks.

ALL federally insured credit unions are being hit with this expense to bail out the corporate credit unions, whether the credit union uses any corporate credit union or not. ASI insured credit unions pay NOTHING towards this bailout - even if a credit union is using a corporate. This means that the ASI insured credit unions are seeing a significant cost advantage over the federally insured ones.

[ozob]

I had a substantial CD with Patelco when it was ASI-insured. I was very, very happy when it went back to the NCUA.

I did a modest amount of research on ASI and (personally) felt there was no way it could cover a Patelco failure.

Maybe I was wrong.

Now, all my money is with FDIC- or NCUA-insured institutions. That makes me sleep better.

O

[nisiprius]

I certainly wouldn't take private insurance for granted. My clear memories of TV news reports of distraught depositors in Rhode Island credit unions tell me that yes, credit unions sometimes fail and yes, their deposit insurance has sometimes failed, too. I have no reason to distrust ASI, but I'm sure the Rhode Island depositors had no reason to distrust RISDIC, either.

My own NCUA-insured credit union failed in the early 1990s, at a time when much of our life savings was in it, and it was a total nonevent. A new sign on the door, a new logo on the statement... I've experienced worse in ordinary bank mergers.

Based on what happened to me with NCUA insurance and what happened to Woonsocket depositors with private RISDIC insurance, I'd never consider private insurance--not when NCUA-insured credit unions are so easy to find.

The Boston Globe, Jul 14, 1991. This is not the Great Depression, this is less than twenty years ago:

R.I. city fights back from banking crisis

WOONSOCKET, R.I. -- "I know people who are eating pet food," said Terry McKenna, who runs an auto repair and used-car dealership about a block from the now closed Marquette Credit Union in the heart of this blue-collar community near the Massachusetts border.

"That's right, pet food," he said. "They had their life savings in that credit union, and now they can't touch the money. It's like suddenly they got nothing."

Marquette was the largest of the 45 banks and credit unions Gov. Bruce Sundlun closed on New Year's Day, following the collapse of the institutions' private insurer, the Rhode Island Share and Deposit Indemnity Corporation, or RISDIC. And the credit union, to which more than 40 percent of Woonsocket's 45,000 residents had entrusted their money, is one of 12 institutions that remains shut, awash in bad loans and unable to qualify for federal deposit insurance.

...the Marquette tower, with its maroon-colored canopies and many layers of shiny, plate-glass windows, was not just another credit union. With deposits exceeding $300 million and more than 76,000 accounts, it had grown from a social club for the large French-Canadian population here to a dominant force in the city's economic life, as well as its skyline.

"It was our credit union. It was part of the fabric of this community," explained Bern Heath, who heads Family Resources, a local social service and counseling center. "And when it went under, you could almost hear a big `whoosh,' like the wind was being knocked out of us."

Added to the economic strains of an old mill town seeking a new identity, the credit union crisis seemed to many like one more nail in Woonsocket's coffin.

The lack of faith, particularly in the city's financial institutions, has become so profound that many residents said they are keeping their money in mattresses or strongboxes in their homes, or carrying it around on them.

[dm200]

I had a substantial CD with Patelco when it was ASI-insured. I was very, very happy when it went back to the NCUA.

I did a modest amount of research on ASI and (personally) felt there was no way it could cover a Patelco failure.

Maybe I was wrong.

Now, all my money is with FDIC- or NCUA-insured institutions. That makes me sleep better.

O

There are many degrees of failure of an insured credit union (or bank). Sometimes the actual losses, even for a large institution, are small. Sometimes, the losses can be significant.

ASI could be the best run organization in the world, and the overwhelming majority of ASI insured credit unions could be the best run credit unoons in the world - BUT a few failures, and the associated bad press could cause a run on savings from these credit unions - and that "run" could cause huge losses and failures of even more credit unions.

Then - what happens? Governmant bailout? Even though these credit unions were not federally insured? Then the reputation of all credit unions suffer, even those federally insured.

While I can find a lot of fault with government regulators, government in general and the NCUA, I reluctantly have concluded that ALL US credit unions should be required to have federal insurance.

[oneleaf]

This has been an informative thread. I learned more about ASI insurance and credit unions in this thread than I anything else I have scoured up on Google. In fact, if you search Google for some applicable keywords, this thread should be one of the first to show up. Just goes to show how fantastic this forum and its members are.