While there have been no problems with the Credit Union Insurance Corp. or the 13 credit unions that it insures in Maryland, state legislators want to look at whether the private insurance system should continue, given recent financial troubles in Rhode Island.
"We're in a new day," said state Sen. Thomas P. O'Reilly, D-Prince George's, the new chairman of the Finance Committee, one of the legislative committees that oversee financial firms. "The economy has changed."
While saying the Credit Union Insurance Corp. is not confronted by problems like those in Rhode Island, O'Reilly said the crisis to the north has "certainly brought CUIC more to the forefront than it had been in the past."
The Credit Union Insurance Corp. is the last vestige of Maryland's private deposit-insurance system. At one time, separate organizations for savings and loans and credit unions insured hundreds of institutions.
But after the state savings and loan crisis in 1985, private insurance for thrifts was replaced. In that crisis, some depositors had their accounts frozen for up to four years.
But the Credit Union Insurance Corp. lived on, primarily because of its reputation as being a strong and conservatively run operation. CUIC officials and credit unions covered by the insurer say the fund continues to be strong and that there is no need to eliminate it.
The 16-year-old CUIC now insures about $60 million in deposits in credit unions ranging from the Post Office Credit Union of Maryland, with $20.3 million in deposits, to small operations with less than $100,000 in deposits.
Deposits at CUIC-member credit unions are insured up to $100,000 per account holder in each credit union.
To back up these credit unions, CUIC has $2.9 million in its fund, or about 4.8 percent of the deposits it insures. This is a larger percentage than the reserves held by any of the federal deposit-insurance funds.
CUIC also has a line of credit for $1 million from the Central Liquidity Fund at the National Credit Union Administration.
The NCUA administers the National Credit Union Share Insurance Fund, the federal insurer that covers 13,000 credit unions nationwide, including 176 in Maryland.
While the private Maryland fund has been relatively obscure for the past few years, it became more visible after Jan. 1, when Rhode Island Gov. Bruce G. Sundlun closed 45 privately insured banks and credit unions until they can get federal insurance. The institutions were insured by the Rhode Island Share and Deposit Indemnity Corp., which asked on Dec. 31 to be placed in financial conservatorship. The reserves of that agency had been drastically depleted by depositors' demands for money from a bank that failed in October.
While no bills concerning CUIC have been filed yet, O'Reilly expects lawmakers will schedule hearings and that CUIC will have the burden of showing why it should continue.
Like other legislators, O'Reilly in past years was willing to let CUIC continue based on the arguments from its supporters that it was actually stronger than federal insurance funds and that close tabs were kept on the financial conditions of the member credit unions.
But in today's uncertain economic climate, he thinks the General Assembly should take another look at the issue.
One question is who will pay if CUIC should be unable to reimburse depositors at a failed credit union. While CUIC has gone to great pains to distance itself from the state -- even printing on its stationery: "No credit union in Maryland is insured by the state of Maryland" -- O'Reilly said the state would no doubt be obliged to step in if there were a problem.
If there is a decision to phase out CUIC, the affected credit unions would probably be required to get federal insurance, merge with other credit unions, or -- as a last resort -- liquidate and give the deposits back to customers by a specific deadline, O'Reilly said.
Despite the recent problems in Rhode Island, CUIC president Maureen W. Schwartz said concern by depositors has been primarily limited to phone calls. "It's been quiet," she said.
However, the Rhode Island crisis has prompted CUIC's board to schedule a special meeting today to discuss the situation and to decide if it will take a poll of CUIC credit unions on whether they want to continue with CUIC or go to federal insurance, according CUIC Chairman Kenneth M. Jones. So far, he said, none of the credit unions insured by CUIC has said it wanted out.
Jones also said it would ultimately be up to the General Assembly as to whether CUIC would continue to operate.
One of the chief reasons for continuing CUIC is that it gives an alternative to federal insurance, which Jones said can sometimes be "autocratic."
"We think viable alternatives are desirable," he said. "There is a vitality to having a diversity of law and regulation."