The Senate Finance Committee has passed a bill to phase out the Credit Union Insurance Corp., the private insurer in Maryland of credit union deposits.
The bill, which will go to the Senate floor on Tuesday, was amended yesterday to allow the 11 credit unions insured by CUIC to have four years to get federal insurance. After that, the private insurance agency would be dissolved. Under the original bill the credit unions had three months to get federal insurance.
Another amendment would require CUIC and the Maryland Bank Commissioner to make recommendations to the General Assembly in two years on how the money that CUIC has -- deposits and net earnings -- should be distributed.
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.
Sen. Thomas P. O'Reilly, D-Prince George's, the chairman of the Finance Committee, who sponsored the bill, said CUIC should be eliminated because of the dramatic change in the financial industry in recent years.
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.
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 corporation 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.