Nearly 100 privately insured credit unions operating in Tennessee have applied for federal insurance.
The applications were submitted after the state's banking department threatened to force credit unions to convert to federal insurance if they did not do so voluntarily.
The credit unions, with $1 billion Of assets, are insured by Mutual Guaranty Corp., a Chattanooga-based firm that has been losing members for two years and plans to go out of business.
"It was evident Mutual Guaranty wanted to go out of business because its membership base has been shrinking," said Katie Edge, deputy commissioner of Tennessee financial institutions.
Decision by Yearend
Currently, 99 credit unions are insured by Mutual Guaranty. Three of those are in the process of merging and are not applying for federal insurance, said William Thomas, chief credit union regulator for Tennessee's banking department.
The credit unions will know whether they qualify for federal insurance by year's end, said H. Allen Carver, director of the National Credit Union Administration's southeastern region.
Last month, the credit unions unanimously agreed that institutions that became federally insured could recover their 1% insurance deposit upon dissolution of the insurer. Credit unions insured by Mutual Guaranty make a capital contribution of 1% of their insured deposits. Under the firm's bylaws, they were forced to give it up if they decided to pull out.
Forfeiture Penalty
Earlier, credit unions that converted to federal insurance forfeited their capital contribution.
James Roberts, executive vice president of Mutual Guaranty, said there is no set liquidation date: "That's not on the table right now." He said he did not know how much money would be divided when the insurer is dissolved. Mutual Guaranty has a capital level of $1.83 per $100 of insured deposits.
Thomas Mottern, president of Mutual Guaranty, is spending much of his time as president of First Claiborne Bank in Tazewell, Tenn.
Books to Be Examined
Ninety federal examiners will review the books of the credit unions, Mr. Carver said.
"The overwhelming majority of the credit unions should be insured, and the remainder would have to resolve whatever defects they have to get insurance," Mr. Carver said. He said he expects all the institutions to receive insurance by early 1994.
Mr. Carver said he did not know whether any credit unions would need a capital infusion to qualify for federal insurance.
"The raw numbers look good, but sometimes they don't hold up when you go in there and look at things," he said.
The ratio of total capital to total assets for all credit unions insured by Mutual Guaranty stands at 9.8%, according to June 30 figures compiled by Ferguson & Co., a consulting firm in Irving, Tex.
Reaction to Rhode Island
The move toward Mutual Guaranty's dissolution was made in response to dwindling membership and to the black eye private insurers received after the Rhode Island Share and Deposit Indemnity Corp. went belly up in January 199 1.
Since the Rhode Island crisis, more than 200 credit unions in Tennessee, Missouri, Kansas, Indiana, and Iowa left Mutual Guaranty, forfeiting $14 million in deposits when they converted to federal insurance.
At the time of the Rhode Island debacle, 1,465 credit unions were privately insured. Since then, private insurers in Florida, Texas, Georgia, and Massachusetts were phased out.
In 1991 Mutual Guaranty, after losing $3.9 million over two years, sought to merge its members with federal insurance. The NCUA balked because Mutual Guaranty refused to let the regulator examine some credit unions considered at risk.
The dissolution of Mutual Guaranty will leave about 650 credit unions under private insurance nationwide. A private insurer in Puerto Rico covers 242 institutions, and American Share Insurance, Dublin, Ohio, covers about 340.
