McDonnell Asks CFA to Change Deposit Insurance Policy Resolution

MERRIFIELD, Va.-The CEO of the largest credit union in the world has asked the Consumer Federation of America to reconsider its policy resolution regarding federal deposit insurance. CFA’s current resolution simply states that all banks and savings and loans should be required to obtain federal deposit insurance. Navy Federal Credit Union President and CEO Brian McDonnell, also a CFA Board member, recently wrote a letter to CFA Policy Resolutions Committee Chairman Mark Silbergeld asking that the language be changed to include credit unions. McDonnell also requested the additional language stating, “however, until all depository institutions are federally insured, all requirements of 12 U.S.C. 183lt, including the mandate for certain disclosures, notification, and acknowledgements should be implemented and enforced.” The law McDonnell is referring to is a provision from the Federal Deposit Insurance Corporation Improvement Act of 1991 that requires privately insured financial institutions to notify depositors that the institution is not federally insured, disclose on periodic statements and account records that the institution is not federally insured, and obtain signed acknowledgement from each depositor that the institution is not federally insured. However, since the signing of FDICIA, Congress has refused to fund the Federal Trade Commission’s enforcement of it. Many believe Congress’ lack of enthusiasm is because the FTC does not want the responsibility, while others say American Share Insurance’s lobby efforts are partially to blame. NAFCU and McDonnell, also a NAFCU member, requested NCUA Board Member Deborah Matz address the issue with the CFA board at a recent board meeting. Matz said she explained the differences between federal and private deposit insurance to the board members via audioconference because CFA’s board members do not deal with the issue on a regular basis. Because her remarks were over the phone, she admitted she could not judge from her audience’s faces, but she said she did field a lot of questions from members who sounded concerned. Matz explained that she was concerned partly because there was only one private deposit insurer left in the country and there is no competition. The other half of her concern is the concentration of deposits. She clarified that she did not see any problems on the horizon, but that sometimes they come up fast. “One or two or three credit unions could really have a significant impact,” Matz said. She added that she feared a residual impact on all credit unions if a problem were to arise with ASI, because members would not distinguish between federal and private deposit insurance. McDonnell’s letter noted this same concern. He quoted none other than Federal Reserve Board Chairman Alan Greenspan during a hearing on deposit insurance before the Senate Banking Committee early last year as saying, “No private insurer would ever be able to match the actual FDIC premium and cover its risk. A private insurer confronted with the possibility, remote as it may be, of losses that could bankrupt the insuring entity would need to see especially high premiums to protect itself, premiums that few, if any, depository institutions would find attractive.” McDonnell told Credit Union Times that he has always been a strong supporter of federal deposit insurance and said, “I don’t like to see credit unions getting away from federal insurance.” He does not have a problem with additional supplemental insurance, he clarified, though Navy Federal does not carry it. He added that he is concerned it will become a trend. Matz said she is afraid it may be too late to curb the potential trend. “Yes, I am concerned that the credit unions will see Patelco and say, `Oh, if it’s good enough for them, it’s good enough for us.’” She acknowledged that she is unaware of any current credit union effort to convert to private insurance. McDonnell’s letter also suggested that credit union members voting to convert to private insurance “may not be impartially or fully informed of the risks and potential consequences of their actions.” NAFCU President and CEO Fred Becker sits on the CFA Board and said that he would vote with the NAFCU Board’s policy, which currently is to support enforcement of the FDICIA provision. McDonnell said he has raised the issue with his representative on the CUNA Board of Directors, but has not had time to receive a response yet. CUNA, which lobbies for both state and federally chartered credit unions, also has a representative, Executive Vice President Pete Crear, on the CFA board. “The Renaissance Commission after getting input from credit unions around the country concluded the choice of private insurance should be available to all state chartered credit unions. As a member of the CFA board, CUNA will be advocating this position during CFA’s upcoming policy deliberations in this issue,” CUNA Senior Vice President of Communications Mark Wolff commented. Private insurance has become an issue of heated debate since the conversion of Patelco Credit Union with nearly $3 billion in assets to ASI as a primary deposit insurer. Patelco’s insured deposits account for nearly a quarter of ASI’s fund. Recently, all three members of the NCUA Board wrote the Colorado regulator, who is considering allowing state chartered credit unions to carry private deposit insurance, urging him not to allow it. CFA Executive Director Stephen Brobeck was unavailable for comment before deadline. [email protected]