ARLINGTON, Va. -
Raising the specter of the failure of the private insurer in Rhode Island-known as RISDIC-NAFCU told the Washington Department of Financial Institutions that "primary share insurance coverage provided by private entities is fundamentally flawed and cannot adequately protect American depositors."
The DFI is considering a rulemaking that would allow American Share Insurance, the sole survivor of a network of two dozen state deposit insurers, to provide coverage in the Evergreen State, a decade after the state's own insurer, Washington CU Share Guarantee Association desolved in the wake of the RISDIC crisis.
Federal deposit insurance funds, like NCUA's National CU Share Insurance Fund, are the only ones with the ultimate backing of the U.S. government, said NAFCU President Fred Becker, in a comment letter to the DFI. In contrast (ASI) does not have federal backing and has no reinsurance, asserted Becker. "For this very reason, the General Accountability Office in 203 doubted the ability of a private insurer's ability to 'absorb catastrophic losses.'"
Crises like the RISDIC failure-which caused the failure of two dozen privately insured credit unions-and scandals in Maryland and Ohio, had a major impact on depositor confidence in institutions in those states, noted Becker.
NAFCU has a recent history of opposition to private deposit insurance, opposing a provision in the regulatory relief bill, eventually removed, that would allow more than 300 privately insured credit unions to join the Federal Home Loan Bank System.
The Washington DFI was prompted to reintroduce the private insurance option by six state chartered credit unions and the Washington CU League, and is expected to finalize enabling regulations over the next few weeks.
