Puerto Rico in talks to get federal insurance.

Puerto Rico's financial regulators are negotiating with the National Credit Union Administration to convert more than 200 credit unions to federal insurance within five years.

If the plan comes to fruition, it would mark the second-largest mass conversion of credit unions to federal insurance. The largest occurred in Texas from 1991 through 1993, when 250 credit unions converted.

The Puerto Rican institutions, which hold $2.6 billion of assets, want federal coverge because it would be stronger than that provided by Prosad, a beleagured state-operated insurer.

"Having the full faith and credit of the United States behind you is a lot better than" a state insurer, said Hector M. Mayol, Puerto Rico's commissioner of financial institutions.

Meetings Since Last Year

Prosad was battered by losses last year, he said. As of June 30, 1993 - the most recent numbers available - the insurer had $25.9 million of reserves and was suffering a net loss of $28 million for the year. Mr. Mayol said he expected some gains this year.

Mr. Mayol and other credit-union regulators have been meeting with federal officials since last year to discuss how Puerto Rican credit unions could qualify for federal insurance.

An NCUA official said granting federal coverage to Puerto Rican credit unions would not jeopardize the National Credit Union Share Insurance Fund.

"They would have to be qualified to convert to federal insurance, so by definition they would not pose an additional risk," the official said.

Potential Problems Cited

Right now, many of the credit unions fail to meet federal capital requirements. Mr. Mayol said, however, that the institutions should be able to increase their capital positions over the next few years, though some would have to merge.

Another potential problem is that some of the state-chartered credit unions currently participate in operations not allowed by federal regulation, such as running grocery stores, said one NCUA official.

In April, Mr. Mayol met with NCUA southeast regional director H. Allen Carver, general counsel Robert M. Fenner, and director of examination and insurance D. Michael Riley.

An agency officals said the three comprise a task force "to monitor the situation and will continue to oversee what's going on in Puerto Rico."

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