6 Corporates Seek Federal Coverage
Six of the nation's 12 corporate credit unions that lack federal insurance have taken the first steps to move under that protective umbrella.
Corporate credit unions, which act as correspondents to other credit unions, handle millions of dollars in industry funds. Thirty-two of these corporates have federal insurance, and the remaining 12 are under increasing pressure to secure it.
Six of the wholesale institutions have applied for backing or made inquiries to the National Credit Union Share Insurance Fund since January, said Robert E. Loftus, director of public and congressional affairs with the National Credit Union Administration.
Legislative Pressure
Mr. Loftus declined to identify the institutions, but noted that calls are ringing out in legislative halls for all types of credit unions to gain federal insurance.
The pressure rose a notch in January when a private insurance company in Rhode Island failed, causing the state to close all the institutions it backed.
In addition, both versions of the banking reform bills working their way through the House and Senate have provisions mandating federal insurance for corporate credit unions, Mr. Loftus said. "I think [the corporates] are moving to get ahead of the curve," he said.
The General Accounting Office, an arm of Congress, released a study in July that emphasized the importance of the corporate credit unions.
The corporates, which provide liquidity and accept deposits for investment, place some of their funds with the U.S. Central Credit Union, which operates as a central bank. It recently applied for federal insurance.
"The safety and soundness of the entire industry clearly requires that special attention be paid to the safe and sound operation of the corporates and U.S. Central," the GAO stated in its report.
The drive for federal insurance "seems to be gaining so much momentum," said Michael Culbertson, president of the $361 million-asset Kansas Corporate Credit Union and president of the Kansas Credit Union League and Affiliates. Mr. Culbertson said his board would consider federal insurance at its next meeting in September.
Other institutions are also on the move.
The board of West Virginia Corporate Credit Union, Parkersburg, voted last month to apply for federal insurance even though its private insurer covers deposits up to $250,000, said Charles Thomas, manager of the institution. Federal insurance covers up to $100,000.
Reaction Is Conceded
"We felt that because of the timing and the perception of the public that we had to make a move to federal insurance," Mr. Thomas said. "We are not trying to get out of private insurance because of any negatives."
The board of Missouri League Corporate Credit Union, a $649 million-asset corporate in St. Louis, voted in April to pursue federal insurance, said Don Constantine, senior vice president of human resource development.
Central Credit Union Fund of Worcester, Mass., applied for federal insurance in June.
Not all corporate credit unions are eager to convert to federal deposit insurance.
"Why should we? Federal insurance is not going to provide our depositors with one iota of security," said Jerry Murphy, president of GardCorp, a Hightstown, N.J.-based corporate with $550 million in assets.
Most Funds in Central Unit
As of June 30, 1990, federally insured credit unions had $20.4 billion in funds invested with the corporates, representing 10% of the industry's assets, according to the GAO report. The corporates, in turn, had invested $20.3 billion with the U.S. Central Credit Union.
The GAO noted several concerns about the way corporate credit unions operate:
* Forty-three of the corporates reported capital equal to just 1.4% of their net assets.
* Some corporates make loans to credit union leagues and at times have shared the same management.
* The National Credit Union Administration does not use its authority to its full extent when regulating the corporates.
