ANNAPOLIS -- The Senate Finance Committee, still mindful of the bill from Maryland's 1985 savings and loan crisis, considered yesterday a plan to abolish the state-authorized insurer of credit unions.
Even though the state does not stand behind the Credit Union Insurance Corp. (CUIC), legislators feared a repeat of the thrift crisis in Maryland that led to a state bailout of almost $200 million.
The Department of Fiscal Services, which presented the proposal to the Senate panel, argued that not only does CUIC pose a potential risk to the state, but it provides no services that couldn't be handled by federal regulators, namely through the National Credit Union Administration, which Maryland credit unions would have to join if CUIC were abolished.
"The existence of CUIC still exposes the state to possible financial liability in case of a crisis in the credit union industry, without providing any benefit to the state or Maryland consumers," the department said in
a report on financial regulation in Maryland.
The report also recommended consolidating into one division the offices that regulate banks and consumer-credit companies, and the Financial Audit Services Team, which comprises all of those offices' financial auditors. It also suggested abolishing the Banking Board and the Collection Agency Licensing Board, advisory panels to their respective agencies.
The Credit Union Insurance Corp., like the defunct insurer of Maryland savings and loans, was authorized by the General Assembly. But it is not an arm of state government, and the state technically is not liable for any of its insured credit unions.
In fact, CUIC and the General Assembly have taken pains to eliminate any association between the two. A few years ago, the word Maryland was removed from its title and the attorney general issued an opinion that declared the company an independent entity, said CUIC President Maureen Walsh Schwartz,whose business card says, "We insure credit unions -- the state does not."
CUIC insures 12 of the 20 state-chartered credit unionsincluding
those operated for employees at Lord Baltimore Laundry, and the Baltimore operations of Procter & Gamble, Lever Bros., and Navistar Corp.
Even so, there was concern among some legislators that Maryland would up taking over for CUIC, as it did for the Maryland Savings-Share Insurance Corp., the private savings and loan insurer before 1985.
"There is a genuine concern on the part of legislators that we don't want to put the state in the position of footing the bill for failed institutions, as we did with the savings and loans," said Sen. Thomas P. O'Reilly, a Prince George's County Democrat and vice chairman of the committee.
At the same time, Mr. O'Reilly said, it's unclear whether forcin the remaining state-chartered credit unions to obtain federal insurance would force them out of business.
If Congress combines the various federal financial insurers, as has been rumored, the fees and assessments for members could become onerous for Maryland's small credit unions, Ms. Schwartz said.
Currently they keep 1 percent of their shares in CUIC, a deposit that is returned to them if they leave the corporation.
Mr. O'Reilly and other legislators in attendance yesterday were more receptive to the idea of combining the financial regulatory agencies.
"On the surface, the recommendations seem to be a good idea,"the vice chairman said, noting the potential savings from combining certain positions, such as counsel.
That proposal faced no opposition yesterday from Banking Commissioner Margie Muller or Consumer Credit Commissioner Alan Fell.
And Mr. O'Reilly suggested the abolition of the bank and collection agency advisory boards was unlikely.
"History suggests that we haven't sunsetted anything," he said. "I don't think we're about to start today."