WASHINGTON - Federally insured credit unions will not be charged a premium to increase the coverage of the National CU Share Insurance Fund to $250,000 per account, but the confidence-building effort could come at a cost later.
The move could prove costly for credit unions if it ends up depleting the reserves for the insurance fund, which would eventually have to be replenished by credit unions.
The increase in federal deposit insurance by the FDIC and NCUA was part of the $700-billion bailout passed by Congress last week as an effort to shore up depositor confidence. Credit union lobbyists got language into the bill at the last minute that says that the increase cannot be used to calculate any increase in premium or deposit.
According to John McKechnie, chief spokesman for NCUA who worked on the bill, any increases will be based on the old $100,000 figure. But an increase in payouts by NCUSIF based on the new coverage of $250,000 per account could tax the already stressed credit union fund, which has been hammered by some of the largest credit union failures over the past six months. The fund currently insures about 97% of all federally insured deposits, but will now insure almost 100%, increasing the likelihood the NCUSIF will pay out more for credit union failures in coming months.
With reserves for the fund declining in recent months, NCUA officials are already considering whether they will have to charge credit unions a premium next year to replenish reserves. The FDIC, which has seen its reserves depleted by some of the biggest bank failures ever in recent months, announced yesterday it is raising funds it charges banks in order to rebuild its reserves.
NCUA's McKechnie said the increase in insurance coverage, which lasts for one year under the bailout bill, went into effect immediately after President Bush signed the bill last Friday afternoon.
The structure of the bank and credit union insurance funds are different. The FDIC's fund, which insures deposits at banks and thrifts, is capitalized by an annual premium assessed to covered institutions. The credit union fund was capitalized by an assessment of 1% of assets on every federally insured credit union. If the fund's reserves, which are supplemented each year by earnings on $7 billion of Treasury securities, fall below a prescribed level, then NCUA may assess a premium to rebuild its reserves.(c) 2008 Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
