FOR IMMEDIATE RELEASE
ICBA Urges Withdrawal of Private Party Share Insurance Plan
Washington, D.C. (Aug. 30, 2007) — The Independent Community Bankers of America (ICBA) urged the Washington State Department of Financial Institutions (WDFI) to withdraw its proposal to allow private share insurance for credit unions.
“ICBA opposes the privatization of federal deposit insurance for financial institutions whether such institutions are credit unions or commercial banks,” said Camden Fine, ICBA president and CEO. “Without the federal government guarantee, consumers would lose confidence in the deposit insurance system and its ability to withstand a financial crisis.”
In a letter to Washington state regulators, ICBA wrote that systemic risk protection cannot be privatized. “Preventing a systemic failure will always remain a government function and a top government priority. A plan with anything less than the backing of the unlimited resources of the federal government would not be able to handle a banking crisis and stem panic or contagion,” ICBA said.
ICBA also pointed out times in the past when other state or private primary deposit insurance programs have failed. In Rhode Island, Ohio and Maryland, for instance, not only were bank customers’ deposits frozen for extended periods of time, but taxpayers were forced to pay millions of dollars to cover the losses of state-sponsored or privately operated deposit insurance funds. “These failures demonstrate that inadequate reserves and lack of diversification can undermine state-sponsored or private primary deposit insurance funds,” ICBA said.
ICBA also noted that some state-chartered credit unions will seek private primary deposit insurance as a way to avoid regulations that apply to federally insured credit unions. Among them is the congressionally mandated rule that caps business lending at 12.25 percent of assets. “It would be poor public policy to permit state privately insured credit unions the opportunity to circumvent federal regulation, and in particular, federal restrictions on business loans,” ICBA wrote in its letter. “Allowing state credit unions to circumvent the federal business loan cap and engage in riskier lending activities would jeopardize the private insurance fund and put the entire state financial system at risk.”
The Independent Community Bankers of America, the nation’s voice for community banks, represents 5,000 community banks of all sizes and charter types throughout the United States and is dedicated exclusively to representing the interests of the community banking industry and the communities and customers we serve. For more information, visit www.icba.org.