By E-mail regcomments@ncus.gov
Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Arlington, Virginia 22314-3428
Re: Proposed rule to update 12 CFR Part 708b, Mergers of Federally-Insured Credit Unions; Voluntary Termination or Conversion of Insured Status
Dear Ms. Baker:
This letter is in response to the National Credit Union Administration's ("NCUA") proposal to amend 12 CFR Part 708b of the NCUA's Rules and Regulations. The Massachusetts Division of Banks ("Division") is the primary regulator of 105 state-chartered credit unions holding total combined assets in excess of $10 billion. The Division also supervises nearly 200 state-chartered banks with total combined assets in excess of $175 billion. The Division welcomes this opportunity to comment in support of the NCUA's proposed rule governing disclosures and notification procedures of mergers and termination or conversion of insured status.
It is the Division's longstanding position that alternative, or private, primary share insurance for state-chartered credit unions is inadvisable on public policy and supervisory grounds. This position is based upon the Division's direct experience during the 1989-1992 New England Banking Crisis and the cross border spill-over effects of the collapse of the Rhode Island Share Deposit Insurance Corporation ("RISDIC") in early 1991. Solely as a result of that failure, Massachusetts experienced a particularly volatile period in which deposit "runs" were not uncommon. During this time, otherwise financially sound Massachusetts-chartered privately insured credit unions were placed at serious risk of insolvency (due to illiquidity) simply because they lacked the federal share insurance guarantee. Consequently, it is the Commonwealth's policy to require that state-chartered credit unions maintain federal share insurance to allay individual depositor's fears and foster public confidence in the financial system particularly during periods of economic distress.
The Division does recognize that a small number of states authorize private, primary share insurance. The Division is also cognizant of the NCUA's authority in this area as well as the potential federal preemption of state law. Nevertheless, the Division firmly believes that in voting to change to private, primary insurance, credit union members must clearly understand the potential ramifications of that action on their personal share accounts. Based on its experience, the Division considers any movement to private, primary insurance by a credit union to be ill founded. Moreover, the Division strongly believes that an increase in the number of privately insured credit unions could significantly increase the safety and soundness risk of the state-chartered credit union movement and consequently pose significant risk to our nation's dual chartering system. For that reason which is supported by historical events, the Division feels compelled to comment in support of the NCUA's proposed rule.
Generally speaking, the Division endorses the concept of providing members with the most information possible to ensure that they are able to make educated decisions relative to the operation of their credit union. This is especially necessary in the case of a credit union considering a conversion from federal to private, primary insurance. The NCUA's proposed rule provides for the form and content of certain information to be disclosed to members and the manner for which a member vote is to be conducted. The Division believes that given the potential impact of a vote to convert from federal to private, primary insurance that the standards utilized to ensure that members fully understand the ramifications of their vote should be set high.
The credit union membership's vote is the final determination on termination or conversion from federal insurance to private, primary insurance. However, it is presently unclear that members are made fully aware of how such a vote may impact their shares. Specifically, members may not understand that, with the conversion to private, primary insurance, their shares will no longer be guaranteed by the full faith of the United States Government. Under the proposed section 12 CFR 708b, the regulation requires that all communication and disclosures relative to proposed conversion from federal to private, primary insurance be subject to prior approval of the NCUA. The Division believes that this will provide for more standardization in such disclosures and is necessary to ensure that adequate disclosure is provided to members prior to a conversion vote. The Division also believes that credit unions will not be unduly burdened by requirements to provide such detailed and sufficient information on this significant action and that their members will benefit greatly by being best positioned to make an educated and informed decision on the insurance of their shares.
If you should have any questions regarding the contents of this letter, please call Senior Deputy Commissioner David Cotney (617) 956-1542. Once again, thank you for the opportunity to comment.
Very truly yours,
Steven L. Antonakes
Commissioner of Banks