Washington state's top banking regulator wants to shutter a private deposit insurance company that covers 77 state-chartered credit unions.
John Bley, director of the Department of Financial Institutions, said that although Washington Credit Union Share Guaranty is presently sound, it might not survive the collapse of a large institution or of several smaller institutions. Federal insurance is the answer, he said.
"Depositors expect their money to be safe in all instances, and [the insurer! doesn't meet that expectation," he said.
"The inherent nature of a private fund is that there are limits to coverage."
The governor's office is now reviewing a plan Mr. Bley submitted in September. And a bill to disband the company might go before the state Legislature next month, he said. The bill would mandate federal insurance for credit unions.
Washington Credit Union Share Guaranty, the state's only private credit union insurer, says Mr. Bley's concerns are unwarranted.
"We're an association of credit unions that feel they can take care of their own better, or at least as well as, the government, and we've done that for 20 years," said Steven Toftoy, president.
David Adams, president of the Washington Credit Union League, said the trade group will oppose any bill that surfaces next year to close down the insurer.
"We believe we have a system that has proven it can be effective in helping credit unions," he said.
Mr. Bley said his concerns stemmed partly from the failures of some seemingly healthy private funds, most notably one in Rhode Island.
He said he wants to take precautionary action now while the industry is healthy and well capitalized.
"It's better to bear a flu shot now than have a flu in February," he said.
Washington Share Guaranty, which insures about $1.5 billion in deposits, requires insured credit unions to hold reserves equal to 1% of their deposits. The insurer assesses those reserves when necessary.
The company has an operating fund of about $3.5 million; contingency reserves total $15 million.
Mr. Bley cites no immediate threats to the insurer. But he says that nothing in its track record indicates it could weather massive failures. Although the insurer has had 29 resolutions in its 20-year history, all the institutions had less than $20 million in assets.
Mr. Adams of the credit union league replies that academic studies have shown the company could survive sizable failures.
William Brandt, president of the federally insured Washington State Employees Credit Union, said the existence of private insurance helps sustain dual chartering and gives institutions leverage over their regulator.
"When the feds get too arrogant, I wave private insurance around a lot," he said.
