One of the architects of the modern system of federal deposit insurance for credit unions called on credit union figures last week to seek major reforms to the current system under the National CU Share Insurance Fund, or NCUSIF.
"We need to think about structuring our systems different than they way they are," said D. Michael Riley during NASCUS' Conference last week. Riley administered the fund for NCUA for 10 years.
Riley, now a consultant in private practice, said the structure of the credit union, bank and s&l insurance funds, which were designed in the decade following the Great Depression, are in need of major reforms. Otherwise, he warned, products and services that have evolved with the financial marketplace are going to continue drawing dollars from federally insured deposits.
Riley worked for NCUA for almost 30 years, during which he helped sell to credit unions the overhaul of the funding of the NCUSIF, with its 1% deposit, when the system was restructured in 1984. "At that point," insisted Riley, "We (NCUSIF) were broke."
Among the changes recommended by Riley are the ability of credit unions and banks to offer different levels of insurance for different products, or to provide tiered coverage on their own, something like the excess insurance credit unions and banks must now obtain outside the federal insurance systems. "Deposit insurers are going to have to have the ability to offer different products," said Riley.
The ability to offer different insurance coverages would allow credit unions to price products and services more competitively, maintained Riley. "There is a need for credit unions to be competitive in the marketplace. Deposit insurance is a part of that," he asserted. "The evolution of deposit insurance is part of the competitive structure of credit unions."
Riley, who served as director of NCUA's Office of Examinations and Insurance for 10 years, said the federal regulators who administer the insurance funds, namely NCUA and the FDIC, are going to have to come up with a reliable system of risk management. "We just don't have a decent risk analysis out there. The CAMEL has lost its hump," said Riley, referring to the widely used ratings system for financial institutions.
He suggested that NCUA look at the risk-based premium system used by the FDIC and base its coverage on the risk profiles of individual credit unions.
Another potential reform, said Riley, would be to open up the NCUSIF and FDIC systems to competition. "Why couldn't the NCUSIF insure banks, for instance? Why couldn't credit unions go to the FDIC for deposit insurance. A monopoly is not good for competition."
Maybe, suggested Riley, consumers should be able to determine their own level and purchase their own insurance. A recent Filene Research Institute found that consumers would be favorable to purchasing uninsured products from credit unions if they were apprised of the risks up front.
Advisory Panel Recommended
Riley also called on more industry involvement in decision- and policymaking at NCUA, with an advisory panel appointed from credit unions to assist the federal regulator on major issues. An industry advisory panel, similar to one operated by the FDIC, was proposed at NCUA two years ago but never came to fruition.