Monday, June 21, 2010

NCUA Request Parallel Insurance Treatment for Non-interest Bearing Transaction Accounts

In a June 17 letter to House Financial Services Committee Chairman Barney Frank (D – Mass.), NCUA Chairman Debbie Matz requested that federally-insured credit unions receive the same insurance treatment as FDIC-insured banks with regard to non-interest bearing transaction accounts.

As the House-Senate Conference Committee deliberate on the Wall Street Reform and Consumer Protection Act, House conferees recommended adding a new provision to the bill making permanent the FDIC’s Transaction Account Guarantee (TAG) program. The Senate conferees countered with extending the coverage for two years.

As background, the TAG program was created in October 2008, as part of FDIC's Temporary Liquidity Guarantee Program (TLGP) to address systemic risk. Under TAG, the FDIC guaranteed all funds held at participating insured depository institutions (beyond the standard maximum deposit insurance limit) in qualifying noninterest-bearing transaction accounts. The TAG program was initially scheduled to expire on December 31, 2009 and was subsequently extended to June 30, 2010. FDIC Board is meeting Tuesday, June 22 on whether to extend the TAG program for another 6 months.

NCUA Chairman Matz wrote Chairman Frank requesting parallel treatment noting that it is a “long-standing congressional practice ensuring that the policies of the NCUSIF are generally consistent with those of the FDIC.” (Below is the text of the letter and the proposed legislative language -- click on images to enlarge).

I would feel a lot more comfortable about the proposed legislative language if the amended Section 207(k)(1)(A)(iii)(I), which defines a non-interest bearing transaction account, included the word dividend along with interest and read as follows "with respect to which interest or dividend is neither accrued or paid." My concern is that a NCUA lawyer would make the determination that Federal credit unions pay dividends, not interest, and thus any transaction account paying dividends would receive a full guarantee from the NCUSIF.

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