$100K Hardly The Limit For Deposit Insurance

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Throughout the debate over deposit insurance reform certain facts have been used and misused to characterize the extent of coverage under federal insurance. The banking lobby, which has been pushing Congress to increase the coverage level for its customers, has downplayed the limits in an effort to convince Congress to act.

More recently, executives at Patelco CU, the $2.8-billion San Francisco credit union asking its members for approval to convert to private insurance, have also made a number of statements related to why it is seeking to switch. One of their assertions is that federal insurance under the National CU Insurance Fund (NCUSIF) only covers up to $100,000 per member, compared to the $250,000 per account covered by private insurer American Share Insurance (ASI).

But a circular being issued by NCUA illustrates how federal insurance can be stretched much further, with a family of four able to get as much as $1.8 million covered under the umbrella of the full faith and credit of the federal government.

"It depends on how you structure your accounts," said Clifford Northup, director of NCUA's Office of Public and Congressional Affairs, who added the federal financial regulators have been trying to explain to consumers the levels of coverage that are available.

For example, for a family of four, each individual can obtain up to $100,000 for a variety of different accounts. Also available are an individual account for the husband, wife and each of two children are each eligible for coverage up to $100,000; joint tenancy accounts for husband and wife, husband and child number one, husband and child number two, wife and child number one, wife and child number two, testamentary accounts for each individual and a combination or each, and individual retirement accounts for each individual. All tolled, some $1.8 million can be covered.

The pending deposit insurance reform bill, likely to pass either this Congress or the next, will increase those limits by at least 30%, and may even double the coverage for retirement accounts. All this virtually makes the concept of excess coverage, over $100,000 per account, somewhat superfluous (except for individuals with no family members).

Even Ed Callahan, the president of Patelco who is now engineering the biggest switch to private insurance ever, concedes his credit union's members would only need the coverage of accounts over $100,000 if it goes bust, an unthinkable idea for the nation's 10th largest credit union. But the confidence of excess coverage, especially for those members watching their stock market savings dissipate, is the major force behind the conversion, he asserts.

NCUA recently embarked on a six-week nationwide advertising campaign to explain the virtues of federal deposit insurance to America's 80 million credit union members. The ads, which will run as public service announcements (PSAs) in all six NCUA regions explain that up to $100,000 per account, and some times more, depending on how a member structures his deposits, are insured by the full faith and credit of the federal government in credit unions covered by the NCUSIF.

The campaign was prompted by the growing concern of Americans who are pouring their funds into credit unions in the face of the deteriorating stock market.

"With all this money coming into credit unions people are concerned with the safety of their savings," said Northup. "We thought it would be a good time to get the word out about the safety of the federally insured funds."

The ads, which are running free of charge because they are public service announcements, began running Aug. 1 on 28 radio stations in the Washington area and 107 on the West Coast. Northup said the ad campaign is unrelated to the defection of Patelco CU.

Incidentally, credit unions are apparently the only financial depositories that still insure deposits through non- governmental institutions, like ASI. Sixteen states still allow private insurance for credit unions.

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