Pubdate: Mon, 01 Dec 2014
Source: Denver Post (CO)
Copyright: 2014 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Author: David Migoya

COLORADO POT CREDIT UNION MIGHT GET STATE APPROVAL

If Feds Deny Insurance, Fourth Corner May Operate in the Private Sector.

If federal regulators deny them critical insurance coverage, 
organizers of the world's first credit union for the marijuana 
industry may have an ace in the hole.

By rule, Colorado-chartered credit unions must have deposit insurance 
from the National Credit Union Administration-but it's a requirement 
that can be waived by the state's financial services commissioner.

That means if Fourth Corner Credit Union can't get NCUA insurance for 
its pot-only deposits - a possibility given that marijuana is illegal 
under federal law - it could ask the Colorado commissioner to reverse 
the 11-year-old rule that prevents state-chartered credit unions from 
obtaining the same coverage privately.

The credit union could point to the same Colorado law it used to 
obtain its state charter, one that also says credit unions must apply 
for NCUA coverage "or comparable insurance approved by the commissioner."

"It would be an issue of a credit union providing a critical public 
service, of serving an underserved, or in this case unserved, 
sector," said Mark Mason, a South Carolina attorney who helped 
organize Fourth Corner.

Fourth Corner, which hopes to be open Jan. 1, plans to offer banking 
services such as checking accounts to cannabis-related businesses and 
individuals who are members of nonprofits that support legal pot.

Deposit insurance protects against the credit union's insolvency and 
is typically provided by the NCUA, although one company in Ohio 
offers it privately.

Other private insurance protects deposits against theft or other crimes.

In March 2003, then-Financial Services Commissioner David Paul 
decided private insurance was not an option for the state's 77 
chartered credit unions, largely because it lacked the kind of 
financial backing that NCUA had.

As was true then, only one company - American Share Insurance in 
Dublin, Ohio - offers private deposit insurance.

"It is my finding that both ASI and the (NCUA insurance) have 
substantial resources on their balance sheets and through their 
assessment authority to cover insurance losses," Paul wrote. 
"However, it is clear (NCUA) has much greater borrowing authority to 
cover the liquidity needs of its insured credit unions."

To quiet critics who suggested the insurance was merely ceremonial, 
Paul spoke, almost prophetically, of the inevitability of a financial 
collapse - which materialized within five years.

"The question that some may ask is whether or not a deposit insurance 
fund's ultimate backing has more than theoretical significance," Paul 
wrote. "My answer to that question is that it certainly does, because 
financial crises do happen in this country."

The three-member NCUA board at the time lobbied hard for Paul to 
decide in its favor, sending a sternly worded letter that called its 
insurance "the superior product for credit unions ... and public policy."

Financial Services Commissioner Chris Myklebust, who gave Fourth 
Corner its charter last month, after learning NCUA could take up to 
two years to decide whether to insure the credit union, said he 
understood the process could loop back around to him.

"The commissioner does have the discretion to decide what is 
comparable insurance to that offered by NCUA," Myklebust said. 
"Whomever is commissioner, should that question come to this office, 
would have the authority to reaffirm or repeal that policy."

ASI did not return calls seeking comment, and it is unclear how many 
credit unions it insures in the nine states it is permitted to offer 
the coverage.

Banking website Bankrate.com in March 2013 reported ASI insured 140 
credit unions in those nine states - California, Nevada, Idaho, 
Illinois, Indiana, Ohio, Alabama, Texas and Maryland.

Allowing ASI to operate in Colorado would open a new set of issues 
for the state Division of Financial Services, which currently 
regulates credit unions in conjunction with NCUA, as well as a 
financial impact on the state budget because additional personnel 
would be needed.

A privately insured credit union would be subject only to state 
regulation. That would fall on Myklebust's staff of 13, which also 
handles savings and loan associations, life-care institutions, and 
enforcing the Public Deposit Protection Act for institutions that 
hold government deposits.

While insured similarly to banks, fewer credit unions failed during 
the peak of the financial crisis than did banks, so fewer fell back 
on bailouts and insurance coverages.

Since 2009, 76 credit unions have failed, according to NCUA. Two were 
in Colorado and 32 were in states that allow private insurance, 
though it's unclear if any were insured in that manner.

But NCUA extols quietly that privately insured credit unions that run 
into financial crisis have a smaller pool of institutions to bail 
them out. Not so with NCUA. Nationally, there were 18 additional 
credit unions NCUA kept afloat by merging them with another.

In contrast, 481 banks failed during the same period, according to 
the Federal Deposit Insurance Corp. Of those, only 26 were not 
acquired by another institution, the remainder purchased or assumed 
by some other banking entity, FDIC records show.

"The critical issue is whether private deposit insurance is 
comparable to that offered by NCUA," Myklebust said. "Former 
Commissioner Paul determined it was not. That was in 2003. If asked, 
we'd have to make that determination for today."
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MAP posted-by: Jay Bergstrom