Credit Union Insurance Fund Prepares to Charge Premium

WASHINGTON - Faced by mounting losses, the national insurance fund for credit unions has been forced to impose a premium for the first time in seven years.

Pending a vote by the National Credit Union Administration board, credit unions will have to pay one-twelfth of 1% of funds on deposit to shore up the National Credit Union Share Insurance fund.

The premium, which is billed as a one-time charge, equals 8.3 cents for each $100 in deposits. It is relatively modest alongside the 23 cents commercial banks pay the Federal Deposit Insurance Corp., a rate that has risen steadily in recent years.

News Breaking to Executives

Roger W. Jepsen, chairman of the National Credit Union Administration, will announce the step today in a speech to credit union executives in Orlando, Fla. Mr. Jepsen's agency administers the share insurance fund, which covers shares - the equivalent of deposits - at 13,000 credit unions.

"Financially, a premium is the prudent thing to do now," Mr. Jepsen will say to the Defense Credit Union Council, according to an advance text of the speech obtained on Friday.

Without the assessment, the credit union insurance fund would lose between $20 million and $30 million in the fiscal year ending Sept. 30.

The fund, which earned $35 million in the last fiscal year, would eke out a profit of $5 million to $10 million this year with the aid of the 8.3 cent premium, according to NCUA projections.

Several Leaking Pipes

Losses from three New England credit unions alone have drained the agency of about $120 million this year, out of total projected insurance losses of $150 million. In addition, the specter of more problems erupting in California has prompted the agency to levy the special one-time charge.

Even so, the fund, which protects $200 billion in deposits, is a long way from being broke. The fund currently holds about $420 million in equity, which translates into a coverage ratio of $1.23 for every $100 in insured deposits, down from from $1.25 earlier this year.

The FDIC Bank Insurance Fund's coverage ratio has sunk to 23 cents per $100.

The credit unions' premium would raise the coverage ratio to anywhere from $1.26 to $1.29 for every $100 in insured deposits.

Voting Due Today

On Friday, the NCUA's board, made up of Mr. Jepsen and Robert H. Swan, will vote on the assessment. It is likely that the credit unions will be tapped for the full amount immediately.

The actual fee could be smaller than proposed, but at the 8.3 cent rate it would bring $160 million into the insurance fund. The Credit Union National Association, a trade group based in Madison, Wis., has submitted a letter arguing for half that assessment rate, to bring an $80 million.

Mr. Jepsen thinks the assessment will demonstrate to Congress that the NCUA is acting quickly and prudently before problems get too big to handle.

"The health of the share insurance fund directly affects the perception Congress has of the credit union industry," he said.

Broad Support Expected

Despite the added cost to their operations, credit union officials support the proposal.

"We will support whatever is necessary to stop the bleeding," said Kenneth L. Robinson, president of the National Association of Federal Credit Unions, a Washington-based trade group. "For 20 years of the existence of the fund, we have never had a losing year."

Mr. Robinson said the increase will do little to hamper earnings.

"I don't have an objection with it if it is warranted and needed," said John Fiore, president and treasurer of Motorola Employees Credit Union, a $130-million-asset institution in Schaumburg, Ill.

Mr. Fiore said the assessment will cost that credit union $108,000.

H.C. Klein, president and chief executive of Little Rock Air Force Base Federal Credit Union in Jacksonville, Ark., said the premium will cost $89,000.

"The losses are there. It is much better that we foot the bill than the taxpayers," he said.

Credit unions are coming off one of their most profitable years. They earned an aggregate $900 million last year. For the first six months of 1991 earnings were $560 million, up 15% from the 1990 period.

Barbara Rehm in Washington contributed to this report.

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