Private Deposit Insurance Systems May Face Changes

THE JOURNAL RECORD, January 4, 1991 | Go to article overview

Private Deposit Insurance Systems May Face Changes


WASHINGTON (AP) - Private deposit insurance systems such as the one that collapsed in Rhode Island still stand behind nearly $1 of every $10 deposited in credit unions.

Officials of the nine other private insurance systems, covering more than 1,400 credit unions in 26 states, hastened Wednesday to assure the public of their funds' soundness.

Nevertheless, the top federal credit union regulator said Rhode Island's problems could encourage some states to force their privately insured credit unions to leave their funds and join the federal system.

Such systems, with a handful of exceptions, already have become a relic of the past for commercial banks and savings institutions.

After private insurance backing savings and loan deposits collapsed in Maryland and Ohio in 1985, several states, including Wisconsin, Virginia and Utah, decided to require their financial institutions to obtain federal insurance or shut their doors.

Roger W. Jepsen, chairman of the National Credit Union Administration, said his agency stands ready to help privately insured credit unions join the federal system.

``We are prepared to receive applications for conversion,'' he said. ``But we will not insure insolvent institutions or institutions that are in deep financial trouble.''

An official representing the private insurance funds, contended, however, that this may be a prescription for greater problems. Driving the strongest privately insured associations to the federal fund would weaken private systems unnecessarily, said Chip Filson of the National Association of Share Insurance Corporations.

``At any given time, an insurance fund is going to have some members that are uninsurable. By sending the strongest members to the federal government, you're depleting your pool of resources,'' Filson said.

In Rhode Island, according to Jepsen, federal examiners have preliminarily determined that only 22 of the 35 privately insured credit unions are eligible for federal insurance. Eleven others are not strong enough and two have not applied, he said.

The Rhode Island fund also insured two commercial banks and eight ``investment and loan companies,'' a bank-like institution unique to the state. The Federal Deposit Insurance Corp. says it will give an expedited review to the five applications it has received. …

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