CUs must have parity with banks in deposit reform legislation

Credit unions must receive parity with banks in any deposit reform legislation, CUNA wrote to House Financial Services and Senate Banking, Housing, and Urban Affairs Committee leadership Monday. Congress and the Federal Reserve have indicated interest in deposit insurance reform in the wake of recent high-profile bank collapses.

“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,” the letter reads. “CUNA is also concerned with any potential legislative impact on the National Credit Union Share Insurance Fund (NCUSIF) and resulting effects on the equity ratio and capital requirements required by the Federal Credit Union Act and implemented by the NCUA.”

Credit unions are healthy and stable, according to the movement’s net-worth-to-asset and equity capital ratios, and more than 91% of credit union deposits remain insured (with the remaining 9% representing deposits that exceed the federal maximum deposit insurance amount).

“It is imperative that, should Congress amend the law and increase [the maximum deposit insurance amount], credit union members should continue to receive parity with account holders at banks,” the letter reads. “In addition, Congress is reportedly considering proposals to provide deposit insurance coverage for business transactional accounts at financial institutions. These accounts have daily balances that fluctuate frequently based on receipts, payments, payroll, and the many other transactions that occur in the normal cycle of business activity.

“The traditional model of fixed deposit insurance may not be the best way to insure such accounts. Should Congress direct the bank’s DIF to provide higher or unlimited coverage for such accounts, the Committee should provide reciprocal instructions pertaining to the NCUSIF,” it adds.

CUNA also encouraged Congress to consider the effect increased amount and scope of deposit insurance will have on mandatory credit union capital requirements.

“During difficult economic times and with uncertainty surrounding many banks, it would be an absolute travesty for any credit union to have to display “no deposits” signs in its lobby,” the letter reads. “Statutory changes should be made to modernize or radically change this PCA structure for credit unions in the event of legislation on deposit insurance reform. Such changes could include changing the capitalization definitions that initiate regulatory intervention.”