Bank regulators in Washington State are preparing to clamp down on its 77 privately insured credit unions.

Starting as early as August, the state banking agency plans to hold credit unions to higher capital and liquidity standards. The regulator also plans to tighten accounting standards.

This is the latest chapter in the struggle between the insurer, Washington Credit Union Share Guaranty Association, and John Bley, director of the Department of Financial Institutions since October 1993. The scrap began last year.

Mr. Bley has urged the state Legislature, unsuccessfully, to eliminate private insurance. While he admits the fund doesn't face any imminent crisis, Mr. Bley contends the geographic concentration of the credit unions it covers leaves it vulnerable.

"I find it necessary to take whatever steps are available to us to try to meet the expectation of members that their deposits are safe under all conditions," Mr. Bley said in a May 4 letter to Tom Lundbom, Washington Share Guaranty Association's chairman.

Mr. Bley has no jurisdiction over the association, but he does regulate the privately insured credit unions.

Responding in a latter May 12, Mr. Lundbom argued that Washington Share Guaranty and its members do not need the regulator's help.

"I would like to state that the overall strength of the membership and the association has never been as encouraging and strong," he said. "The capital levels are at all-time highs; delinquencies at all-time lows."

Still, the state agency plans to issue proposed changes for comment at the end of June, and a final rule is expected by July 31.

Washington Share Guaranty's 77 members hold $1.8 billion of deposits, with about half held by four institutions.

Credit unions fund Washington Share Guaranty with 1% of their insured deposits. But rather than placing the money with the corporation, they keep the money on their books and pony up when the insurer levies an assessment.

Mr. Bley said he is worried that a credit union could run into trouble if it had to pay the assessment. He is planning to exclude that reserve from the credit unions' liquidity and capital.

The credit unions' contingency reserve must be in liquid investments subject to a 90-day call. Mr. Bley wants those investments marked to market value.

Robert Kane, chief executive of $222 million-asset Weyerhauser Credit Union, opposes that move.

"Credit unions should be able to determine that for themselves," he said.

Further, Mr. Bley plans to make the credit unions comply with generally accepted accounting principles. The lack of that requirement has made it difficult to gauge the unrealized investment losses, he said. Also, only half of the credit unions keep an allowance for loan losses, he said.

"We're moving from generally casual accounting principles to generally accepted accounting principles," Mr. Bley said in an interview.

Because credit union call reports don't use generally accepted principles, Mr. Bley said he plans to emphasize on-site field examinations. Recently, his examiners found three Washington Share Guaranty members, with $74.5 million of assets, were hit hard by interest rate increases.

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