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Credit Union News - ASI Review and a Credit Union Liquidation


The Las Vegas Review-Journal has a good review of American Share Insurance (ASI). This is especially relevant to Nevada since it has so many credit unions which depend on ASI for all of their deposit insurance. For those not familiar with ASI, please refer to my September post in which I described how a Texas credit union is trying to replace its federal NCUA insurance with private ASI insurance.

The Las Vegas article mentioned a 2003 GAO report which described some potential issues with ASI:
"First, ASI's insured risks are overly concentrated in a few large credit unions in certain states," the federal report observed. "Second, ASI may have a limited ability to absorb catastrophic losses because it does not have the backing of any governmental entity and its lines of credit are limited,"

The article does include an interview with the ASI CEO who tries to ease concerns of those worried about ASI and its ability to cover any potential credit union failures. As I mentioned in my September post Silver State Schools Credit Union in Nevada is a large credit union with only ASI insurance that is having financial difficulty. The reporter asked the ASI CEO about this, and he said "he was confident in the financial strength of Silver State Schools."

I think what troubles people about private deposit insurance is that it's very hard to really know the financial state of an institution. You often don't know the true state until it's too late. The following fact mentioned in the article is worrisome:
If American Share itself became insolvent, the seven Nevada credit unions relying on the private deposit insurance would be uninsured, said George Burns, commissioner of the Nevada Financial Institutions Division.

The ASI may be better funded than the NCUA, however, the following excerpt from the article explains why I'm not worried about my federally insured credit union deposits:
NCUA has regular borrowing authority for $6 billion plus another $30 billion in emergency authority to borrow from the Treasury Department. The federal government backs up NCUA's deposit insurance.

Credit Union Liquidation:

There was also some credit union news from the NCUA which reported yesterday of the liquidation of a tiny credit union, Fairfield County Ohio Federal Employees Federal Credit Union. It's the 14th liquidation of a federally insured credit union this year.

The credit union only had 747 members and less than $1.5 million in assets. The NCUA did not find another credit union to take over this failed credit union. Consequently, it's issuing checks to "individuals holding verified share accounts." There's no mention of how much if any of the share accounts exceeded the $250,000 insurance limit. Since the assets were only $1.5 million, I would guess no member had accounts that exceeded this limit.

Based on NCUA's history from last year, it's not uncommon for the NCUA to completely shut down tiny credit unions. Larger credit unions have tended to be placed into conservatorship and eventually merged with healthy credit unions.

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Anonymous   |     |   Comment #1
Re: Bank failures (not CUs)...

In case you didn't see WSJ quotation..

"The Federal Deposit Insurance Corp. (FDIC) is having problems dealing with a growing number of seriously ill U.S. banks, analysts said.

"Some banks are in such poor condition that potential buyers will not purchase the banks at any price, even if the government agrees to absorb the losses on the failed banks' bad loans, analysts added.

"Along with the burden of depleted capital, many banks seized by the U.S. government are small, operate in areas with sketchy growth prospects, and are full of expensive deposits gathered through brokers that are likely to be taken away when the acquiring bank reduces interest rates, some bankers have said. FDIC officials may need to bundle a few banks together to entice potential buyers, said Kevin L. Petrasic, a lawyer at Paul, Hastings, Janofsky & Walker LLP

(The Wall Street Journal Nov. 30) ...
Duck   |     |   Comment #2
In response to above post Re: Bank failures (not CUs)...
That has been public since last year it is nothing new just rehashing but does'nt that just give you a warm cozy feeling
Steve   |     |   Comment #3
Great article. Thanks Ken

Steve Glasgow