The nation's second-largest private insurer of credit unions has made a proposal that, if approved, would put it out of business.

Mutual guaranty Corp., Chattanooga, Tenn., issued an ownership settlement agreement to its 105 members, all in Tennessee. Under the proposal, resigning credit unions would no longer have to forfeit 1% of insured deposits.

The insurer also is encouraging its membership to shift to the National Credit Union Share Insurance Fund.

Under the Gun

The plan hinges on approval by all member institutions by Nov. 1. So far, 75% have approved. Credit unions are expected to go along - because if they don't, a bill requiring federal insurance will be introduced in the state legislature, said Katie Edge, deputy commissioner of Tennessee financial institutions.

Mutual has been losing members for two years. "There exists a perception that private deposit insurance is not as strong as federal," said James Roberts, executive vice president. "Perception is sometimes more overpowering than reality."

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