Tuesday, December 10, 2013

ASI and Federal Home Loan Bank Advances

H.R. 3584 would permit privately insured credit unions to join a Federal Home Loan Bank. But what needs to be discussed is the financial viability of a private insurer to a failure of a non-federally-insured credit union with a significant level of secured advances from a Federal Home Loan Bank (FHLB).

Advances provided by the FHLBs are secured and have priority in any financial institution failure. In other words, the interest of deposit insurers -- whether the Federal Deposit Insurance Corporation (FDIC), National Credit Union Share Insurance Fund (NCUSIF), or American Mutual Share Insurance (ASI) -- are subordinated to the claims of FHLBs, which means greater losses for deposit insurers in a failure.

In fact, the FHLB system has never lost a penny on advances in its history.

However, there are major differences between both federal deposit insurers and ASI. Both the FDIC or NCUSIF have large and geographically diversified memberships; but also have the full faith and credit backing of the Federal government.

On the other hand, ASI has a small number of state chartered credit unions as members and lacks geographic diversification. There are 137 privately insured credit unions as of June 30th located in 9 states with almost 95 percent of the deposits of privately insured credit unions concentrated in five states. In addition, ASI does not have any federal backing.

Given ASI's limited resources, a failure of any institution with an exposure to FHLB advances would likely have a significantly larger impact on ASI relative to losses faced by the FDIC or NCUSIF. The cost of such a failure would be difficult for privately insured credit unions to absorb, given the small pool of privately-insured credit unions.


  1. Hmm. Had been considering asi for our credit union to get out from NCUA.
    But this is a little scary.
    How many asi credit unions and assets are there. In other words, what is the size of the risk pool?

  2. As of September 30, 2013, there were 133 privately insured credit unions with almost $11.9 billion in deposits.



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