Executive Summary
The horrendous losses experienced in the Savings and Loan debacle and the more recent revelations of losses facing the banks’ insurance fund have raised major questions about deposit insurance. Professor Edward Kane was asked to examine the issue of how to design a deposit insurance system that effectively monitors and polices risk-taking by credit unions and still allows them flexibility to expand and adapt to changing financial conditions.
What is this research about?
Professor Kane shows that the National Credit Union Share Insurance Fund is sound and is not plagued with an overhang of actual or potential losses. However, he shows why credit unions should be interested in investigating alternatives to their current form of deposit insurance despite its soundness. Kane develops a broad outline of a deposit insurance system that effectively monitors and polices risk-taking by credit unions and still allows them flexibility to expand and adapt to changing financial conditions.
What are the credit union implications?
Ongoing rapid changes in technology, integration of financial markets, and fierce competition from banks and nonbank financial providers all require that credit unions be free to develop innovative ways to meet the demands of their membership. Decisions must be market driven business decisions, not decisions made in the political arena. If this is not the case, the true cost of deposit insurance may be lingering death of many credit unions and other government insured financial intermediaries.
This report was sponsored by The Center for Credit Union Research at the University of Wisconsin—Madison.
