WASHINGTON (2/4/09)—The U.S. Congress should take an important step to maintain depositor confidence in credit unions and banks and make permanent higher deposit insurance limits, the Credit Union National Association (CUNA) said Tuesday. As the House Financial Services Committee conducted a hearing on three bills, CUNA sent a letter to the panel’s top members, Chairman Barney Frank (D-Mass.) and ranking Republican Rep. Spencer Bachus of Alabama. CUNA strongly supported H.R. 786, which would permanently set federal share and deposit insurance at the higher levels authorized under the 2008 Emergency Economic Stabilization Act (EESA). EESA increased both credit union and bank and thrift insurance coverage from $100,000 to $250,000, effective the moment the president signed the bill into law. However, the increase is temporary and is set to expire Dec. 31 this year. CUNA maintains it would undermine an already shaky financial sector if Congress were to turn back time to the lower insurance levels. Frank reflected this concern in his statement opening the hearing. He said depositors could easily find themselves in a situation where a CD was covered by insurance when it was opened, but not covered as its term progresses. He said it was a “bad idea” to approve higher limits “on a yo-yo basis.” While strongly endorsing H.R. 786, CUNA asked for modifications to the bill that would be of key importance to credit unions. First CUNA recommended a statutory change that would establish a longer time period for the National Credit Union Administration (NCUA) to replenish its share insurance fund. Currently, the Federal Credit Union Act requires NCUA to replenish the National Credit Union Share Insurance Fund within the year that the fund drops below 1.2% of insured deposits. The FDIC is currently permitted five years to replenish it fund, and section 2 of H.R. 786 would extend this period of time to eight years. The NCUA should have the same authority, the CUNA letter said. That change is particularly important, CUNA noted, in light of the NCUA’s current intention to fund a corporate credit union aid plan through a premium on natural person credit unions. CUNA also sought:
* Increasing the NCUA’s borrowing authority to around $10 billion, so the agency can lend effectively to credit unions affected by the financial crisis; and * Similar risk authority for the NCUA that is authorized for the FDIC. Without specific statutory language defining its authority, CUNA wrote, the NCUA has been reluctant to provide unlimited deposit insurance coverage for non-interest bearing transaction accounts an action already taken by the FDIC.
The NCUA, late afternoon, released a similar letter to Frank, also seeking increased borrowing authority from Treasury and expanded authority to use the NCUSIF to address systemic risk “under extreme circumstances.” The agency also sought a broader timeframe for NCUSIF restoration –suggesting a period of up to five years. The financial services committee hearing also addressed H.R. 787, a bill to make improvements in the Hope for Homeowners Program, and H.R. 788, a bills provide a safe harbor for mortgage servicers who engage in specified mortgage loan modifications, and for other purposes. Much of the panel’s questions targeted the Hope for Homeowners Program, which critics have said has failed to produce the kind of foreclosure mitigation help for which it was intended. The House Financial Services Committee is scheduled to mark up all three bills today.