OLYMPIA, Wash. — The regulator in Washington State, at thebehest of a handful of credit unions and the state league, hasbegun the process to study private primary deposit insurance forcredit unions and its applicability within state law.

In July, Washington's Department of Financial Institutionsannounced that it would begin looking into changing its regulationsto codify the law, which permits state-chartered credit unions touse a private primary deposit insurer. American Share Insurance isthe sole remaining private primary deposit insurer since most ofthem closed their doors after the Rhode Island Share and DepositIndemnity Corp. failure due to embezzlement.

“I think they have a strong, independent attitude up there andthey like to have their choices,” ASI President and CEO DennisAdams said. He said his organization has met with between five andeight credit unions that have expressed some interest in theirproduct so there “appears to be some demand.”

In a letter to the state's credit unions, Director of CreditUnions Linda Jekel stated that the department had been “approachedby several credit union executives and the league to inquire aboutwhether the department would allow credit unions in this state tobe insured by a private insurer.”

“It has always been our position credit unions should be able tohave a choice between federal insurance and private insurance,”Washington Credit Union League Senior Vice President for Policy andPublic Advocacy Stacy Augustine confirmed. “Choice is strength.”League President and CEO John Annaloro noted that though there hasbeen interest in the option, “that is different than having made adefinite decision…I don't think any institution has made up itsmind, which makes us unique.” Adams and Annaloro both said theyhave not heard and do not feel the exploration by these creditunions is a move to get away from NCUA oversight. Annalorohighlighted that even though Washington has one of the most liberalstate charters in the country, 59 of the state's 138 credit unionsare federally chartered; NCUA requires federal primary depositinsurance of federal credit unions. Adams pointed out thatWashington–as well as Texas and Maryland, which have added privateinsurance to their options in recent years–had private depositinsurers at the time of the RISDIC crisis in the early 1990s.Additionally, ASI's subsidiary, Excess Share Insurance that offersinsurance over the federal level, has been operating in Washingtonfor about a decade, he said, so the credit unions there may have acertain comfort level. According to Washington law, Jekel wrote,“An equivalent share insurance program is defined as one that (a)holds reserves proportionally equal to the federal share insuranceprogram, (b) maintains adequate reserves and access to additionalsources of funds through replenishment features, reinsurance, orother sources of funds, and (c) has share insurance contracts thatreflect a national geographic diversity.” The director will hold ahearing as part of the process and would have to make a findingthat such an insurer exists. Adams said he would hope theWashington DFI would consider ASI's application.

To get the ball rolling, the department has filed a PreproposalStatement of Inquiry to notify interested parties that it isinitiating the process of defining what is equivalent, establishingrequirements for credit unions that wish to use private insurance,and identifying requirements for the insurer.

ASI, leading up to the inquiry to the state regulators, hasserved as an information source for interested credit unionsexplaining the process to them and the role of private primarydeposit insurance and is now willing doing the same for the stateregulator, Adams said.

Annaloro also explained that in Washington, the regulator has tooffer up its findings to the state legislature for consultation.Washington State credit unions have already waited through anadministration that did not favor the private insurance option, hesaid.

Since the state assembly is out right now and the inquiry isjust beginning, it will likely be spring of 2008 before the optioncould be available. Then, Adams said, the process of convertingfrom federal to private insurance typically takes about four to sixmonths. He added, “We work hard to educate people and help themcomply with NCUA's rules and regulations.” NCUA's Part 708B he saidgoverns the insurance conversion process.

And while these interested credit unions in Washington may notbe running away from NCUA, they may be heading toward something.ASI's contract for insurance allows for–if permitted by statelaw–member business loans to one entity of up to 20% of the creditunion's net capital rather than NCUA's 12.25% of assets.

Texas just began allowing private deposit insurance for itsstate chartered credit unions this summer. According to Adams, ASIhas been in talks with some Texas credit unions “forever” butreally got down to business in January. So far, none have joinedASI yet, he said. ASI also currently operates in Alabama,California, Idaho, Illinois, Indiana, Maryland, Nevada, NewHampshire, and Ohio.

A few years back, ASI failed to make inroads into Colorado whenthe regulator rejected the insurer as not falling within the statestatutory description of a permissible private insurer. There hassince been an administrative change, but Adams said ASI has notbeen asked since to help begin preparatory work there.