CUNA to Congress: Insurance Parity Between CUs, Banks Is Essential

Letter says any increase to account cap on federal insurance must also be applied to credit unions.

Credit union and bank accounts must receive the same level of federal insurance, CUNA President/CEO Jim Nussle said Monday.

And so, if Congress decides to increase the $250,000 account cap on federal insurance, the House and Senate must do the same for credit unions, Nussle wrote, in a letter to the House Financial Services and Senate Banking committees.

Backstory and Context

In the wake of the failure of Silicon Valley Bank, policymakers have been examining whether the $250,000 maximum insurance cap is sufficient. More than 90% of Silicon Valley’s deposits exceeded that mark, but the federal government decided to insure them anyway.

In a report issued Friday, the FDIC suggested that “targeted coverage”—where certain types of accounts are insured at higher amounts than others—might be the most effective update to the system.

The FDIC said that targeted coverage, which allows for higher or unlimited deposit insurance limits for business payment accounts, has the greatest potential to meet many of the objectives of the deposit insurance system, while also solving many of the undesirable consequences of raising the limit more broadly.

Inside the CUNA Letter

Nussle said that whatever Congress decides, credit union accounts must be insured at the same level as bank accounts.

“Our primary concern regarding any deposit insurance reform legislation passed by Congress is to ensure that credit unions receive parity, fair treatment, and equal protection with banks,” he wrote.

He added that CUNA also is concerned about any potential legislative impact on the NCUA’s Share Insurance Fund, the agency’s equity ratio and capital requirements mandated by federal law.

Nussle said that if Congress increases the amount and type of deposits covered by federal insurance, all credit unions would be required to make additional payments to the Share Insurance Fund.

“We believe that Congress should consider the effect this will have on mandatory credit union capital requirements,” he wrote. “We propose that Congress consider giving the NCUA flexibility to further adjust the level and management of the NCUSIF equity ratio as mandated under existing law.”

Nussle said further that any increase in deposit insurance could result in additional premiums paid by credit unions.

“Because the NCUA has very little regulatory flexibility to adjust the capital level for credit unions or to take into consideration unanticipated circumstances, a very well capitalized and healthy credit union can see its net worth ratio decline if it takes in a large amount of unplanned deposits,” he wrote.

What Happens Next?

The House Financial Services Committee has scheduled a Wednesday hearing on the recent failures.

In testimony prepared for that hearing, Thomas Michaud, president/CEO of Keefe, Bruyett & Woods—an investment research, equity brokerage and investment banking services company—called for increasing the insurance for business operating accounts.

He also said that banks should be given the option of purchasing additional insurance coverage for other accounts.