Several boards of directors in credit unions across the nation have been voting to convert their credit union’s share insurance provide from the federally-backed National Credit Union Association (NCUA) to the privately backed American Share Insurance (ASI) because of the high-premiums the NCUA Share Insurance Fund has had to charge because of the financial crisis.
Velocity Credit Union, a financial institution looking to move to ASI, stated that the reasons were largely financial. Velocity would have been charged a 2009 premium of $675,000, or 0.15% of insured shares, to insure its funds. The additional cost for federal insurance will adversely affect the credit unions capital levels and put it in a weaker financial position. As a result, board members voted to switch to the more affordable ASI insurance.
American Share Insurance can offer more affordable insurance than the federally-backed NCUA because it can be more selective about who it insures and because the company does not insure corporate credit unions. ASI also insures each account up to $250,000 regardless of how many accounts (shares) the individual has in the credit union. The lack of insuring corporate credit unions may be a big advantage in the next several months as commercial real estate listings hit hard times.
Not all credit unions will be able to make this move. Only state-chartered institutions in certain states, including Alabama, California, Idaho, Illinois, Maryland, Nevada, Ohio and Texas can use ASI as their primary insurance provider.
Although ASI offers larger insurance levels for credit union members and offers lower fees, credit union members money will no longer be insured by the full faith and credit of the federal government, so the safety of their money is only as a strong as ASI’s insurance fund is. This does not mean that ASI is useless insurance though. ASI has no mortgage-backed securities or exotic investments in its portfolio and over 95% of its investments are held in cash or in federally-guaranteed bonds. To date, no credit union member has ever lost money in an ASI account.
