Full faith and credit of the US Government or an insurance company I've never heard of
November 23, 2009 9:51 PM Subscribe
My credit union (in California) switched from being federally insured to private insurance through American Mutual Share Insurance Corporation (aka ASI). Should I put my money elsewhere? Or am I needlessly worrying?
I feel like I understand the level of risk/safety with a federally insured account. My gut reaction is that my money is now at greater risk -- if the credit union fails, rather than being backed by the government, it would be backed by another private firm that could, itself, fail. But this is pretty much just conjecture on my part, and up until now I've been pretty happy with my current credit union.
I feel like I understand the level of risk/safety with a federally insured account. My gut reaction is that my money is now at greater risk -- if the credit union fails, rather than being backed by the government, it would be backed by another private firm that could, itself, fail. But this is pretty much just conjecture on my part, and up until now I've been pretty happy with my current credit union.
After reading khedron's link, I'd be concerned whether ASI could weather the failure of multiple CUs. The NCUA has the Federal Gov behind it. ASI has ... just ASI
unless they have reinsurance, which is possible, but then how much do they have?
If they don't, their insurance is limited to the cash they have in their own savings account. This is not to say they don't manage their money well, but with enough CUs failing, that money would run out.
posted by zippy at 10:45 PM on November 23, 2009
unless they have reinsurance, which is possible, but then how much do they have?
If they don't, their insurance is limited to the cash they have in their own savings account. This is not to say they don't manage their money well, but with enough CUs failing, that money would run out.
posted by zippy at 10:45 PM on November 23, 2009
Best answer: Here's a little bit of the background story. Last year a couple of the corporate credit unions in the NCUA got in trouble by investing in some of those mortgage securities that went bad. Corporate credit unions are the credit union's credit union. They are the big co-ops that provide local credit unions with some of their services and handle some of the investment of their cash. The corporate credit unions got caught in the credit crunch requiring a big bailout from the feds to support the NCUA. This is only a loan from the feds that the NCUA has to pay back so they raised their insurance rates dramatically on their member credit unions. This created a big hit to the credit unions so the feds backed off and the NCUA is now allowing the bailout money to be paid back by the credit unions over an extended period to reduce the pain. But this was still enough to cause some credit unions to look to alternate insurance.
The ASI may be a solid organization, but the problem is that the value of your credit union's insurance depends on the unknown finances of all the other credit unions insured by ASI. If a couple of big ones go belly up, your credit union could lose its protection just when you need it.
A couple of years ago I would have said ASI should have no problem but after the events of the last year I have seen things that I never thought could happen. It just isn't worth it to take a chance without government backing anymore. It's unlikely you would lose everything but you could easily wait months to get your money back. That doesn't happen with the federally backed NCUA.
posted by JackFlash at 11:23 PM on November 23, 2009
The ASI may be a solid organization, but the problem is that the value of your credit union's insurance depends on the unknown finances of all the other credit unions insured by ASI. If a couple of big ones go belly up, your credit union could lose its protection just when you need it.
A couple of years ago I would have said ASI should have no problem but after the events of the last year I have seen things that I never thought could happen. It just isn't worth it to take a chance without government backing anymore. It's unlikely you would lose everything but you could easily wait months to get your money back. That doesn't happen with the federally backed NCUA.
posted by JackFlash at 11:23 PM on November 23, 2009
unless they have reinsurance, which is possible, but then how much do they have?
I read in one article about the recent financial crisis that part of the problem was: One bank would buy insurance for their mortgage-backed security from another bank (to reduce the security's risk rating) and that bank wouldn't have a pile of cash on hand to pay that insurance, so they would make sure they could meet their insurance obligations by... buying insurance from a third bank. And so on.
Which worked fine when no-one much was claiming on that insurance. But when a large number of these securities simultaneously went bad and the insurers had to pay out a large amount, it essentially turned out that everyone had insurance on their insurance on their insurance, but none of the insurers actually had enough money to pay out.
The good thing about government-backed insurance is it's backed by the US government's ability to levy taxes - making it pretty much as secure as US banknotes.
posted by Mike1024 at 1:04 AM on November 24, 2009
I read in one article about the recent financial crisis that part of the problem was: One bank would buy insurance for their mortgage-backed security from another bank (to reduce the security's risk rating) and that bank wouldn't have a pile of cash on hand to pay that insurance, so they would make sure they could meet their insurance obligations by... buying insurance from a third bank. And so on.
Which worked fine when no-one much was claiming on that insurance. But when a large number of these securities simultaneously went bad and the insurers had to pay out a large amount, it essentially turned out that everyone had insurance on their insurance on their insurance, but none of the insurers actually had enough money to pay out.
The good thing about government-backed insurance is it's backed by the US government's ability to levy taxes - making it pretty much as secure as US banknotes.
posted by Mike1024 at 1:04 AM on November 24, 2009
Yeah, I'm with mike1024. Without the NCUA (or a bank without the FDIC) and you might as well be in Potterville.
posted by gjc at 3:06 AM on November 24, 2009
posted by gjc at 3:06 AM on November 24, 2009
I, myself, would walk-away and take my money to a NCUA-backed credit union. NCUA has the government behind it and it simply can't get any more secure than that. ASI, in the end, has no safety net to offer its depositors, save for whatever deals and arrangements it can construct on its own.
posted by Thorzdad at 6:11 AM on November 24, 2009 [1 favorite]
posted by Thorzdad at 6:11 AM on November 24, 2009 [1 favorite]
n-ing the "ASI has no safety net" responses.
I wonder if Zombiedance's credit union did this in response to the recent decision by the feds to levy 3 years of premiums at once to shore up their funds. I don't know if this applies to NCUA institutions.
posted by webhund at 7:53 AM on November 24, 2009
I wonder if Zombiedance's credit union did this in response to the recent decision by the feds to levy 3 years of premiums at once to shore up their funds. I don't know if this applies to NCUA institutions.
posted by webhund at 7:53 AM on November 24, 2009
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posted by khedron at 9:58 PM on November 23, 2009 [2 favorites]