Federal Credit Union Regulator At Impasse on Merger with Insurer

WASHINGTON -- Negotiations to merge a major private insurer of credit unions into the National Credit Union Share Insurance Fund have reached an impasse, leaving in doubt the future insurance arrangements for more than 300 credit unions in Tennessee and several midwestern states.

Roger Jepsen, the top federal regulator of credit unions, said Tuesday that no deal can be made until Mutual Guaranty Corp. of Chattanooga, Tenn., lets federal officials examine the books of its credit-union clients. It has so far refused to let the agency examine the majority of its credit unions.

Stringent Application Tests

Mutual Guaranty, the nation's second-largest private insurance fund for credit unions, has been negotiating to convert its members to federal coverage. While Mutual Guaranty officials claim their fund is sound, it lost $3.9 million over the past two years and has seen its membership decline.

The National Credit Union Administration, the agency headed by Mr. Jepsen that administers the federal insurance fund, has been closely scrutinizing new applicants for coverage. With a growing number of states mandating federal insurance for credit unions following the collapse of a private insurer early this year in Rhode Island, the NCUA has become particularly sensitive to applicants' health.

"We cannot and will not come to any kind of negotiating table until we have the facts before us," Mr. Jepsen said of the Mutual Guaranty talks.

Another National Credit Union Administration official earlier Tuesday had told the American Banker that the deal was off. But later in the day, Mr. Jepsen had a conversation with Tom Mottern, president of Mutual Guaranty, who agreed to bring the NCUA's proposal before his board later this week, Mr. Jepsen said.

"They have left the door open a crack," Mr. Jepsen said. "The minute their board says to us, |Please examine those 310 credit unions,' then we sit around the table and talk."

The Tennessee company insures $2 billion of deposits at 317 credit unions, mostly located in Tennessee, Missouri, and Kansas. The latter two states have already required all privately insured credit unions to convert to federal insurance, affecting 120 Mutual Guaranty members.

If the Bush administration's banking-reform bill passes in its current form, all U.S. credit unions will have to be federally insured.

Since December, the NCUA and Mutual Guaranty have been in talks trying to reach an agreement to merge 317 credit unions into the National Credit Union Share Insurance Fund. The NCUA said there are at least seven institutions it will not insure because they are troubled.

Mr. Mottern, a former Tennessee banking commissioner, said he expects to receive a letter from Mr. Jepsen soon that will state his position.

"If it contains a new proposal, we'd like to hear it," he said. "If we don't have a deal, and if we can't work this thing out, we just need to close the file on this exercise and move forward. We are not mad at anybody and I hope nobody is mad at us."

Mr. Mottern maintains that his insurance fund, which is owned by the credit unions members, is on solid footing with $28 million in capital, and a reserve ratio of $1.45 for every $100 in deposits.

But the company has at least two challenges ahead: One is to stem losses, and the second is to survive on a smaller book of business.

Forfeitures for Exiting

Exiting credit unions have to forfeit 1% of their insured deposits and a special assessment the company levied on the credit unions in 1987. Mr. Mottern said Mutual could gain $7.7 million from forfeitures.

Mr. Mottern said the company will focus on helping the Kansas and Missouri credit unions convert, and concentrate on the remaining 189 credit unions it covers in Tennessee and six in Indiana.

But even some Tennessee credit unions are planning to leave the insurer, said D. Michael Riley, director of the office of examination and insurance at the NCUA. Mr. Riley said 15 Tennessee credit unions have already applied for federal insurance.

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