About 150,000 credit union members in Southern Nevada are relying on a little-known mutual insurance company in Ohio to protect their checking and savings accounts.
These credit unions, which include some of Nevada's biggest, depend on American Share Insurance, a mutual insurance company in Dublin, Ohio, to protect members' deposits in the event of a credit union failure. It is the only private deposit insurance company in the country at a time when banks and many credit unions reassure customers they are backed by the "full faith and credit" of the federal government.
In a 2003 report, the General Accountability Office, the investigative arm of Congress, expressed concern about American Share's financial strength.
"First, ASI's insured risks are overly concentrated in a few large credit unions in certain states," the federal report observed. "Second, ASI may have a limited ability to absorb catastrophic losses because it does not have the backing of any governmental entity and its lines of credit are limited," the report said.
American Share Chief Executive Officer Dennis Adams disagreed with the GAO evaluation of his insurance company.
"We're very safe and sound," Adams said. "I think we're doing fine."
It's hard to predict what would happen in Nevada if American Share failed.
The seven American Share credit unions based in Nevada reported $1.9 billion in deposits at the end of September.
The privately insured credit unions in Southern Nevada are Silver State Schools Credit Union, Plus Credit Union, Clark County Credit Union and Boulder Dam.
Cumorah Credit Union was seized in October and merged with Community 1 Credit Union of Rantoul, Ill. -- a deal facilitated by American Share.
Bill Ferrence, general manager of Boulder Dam Credit Union, said he was "very comfortable" relying on American Share insurance.
Eric Estes, Boulder Dam assistant manager and a board member at American Share, said the private deposit insurance company is subject to Ohio state insurance regulation and by state financial officials in all nine states where it operates. American Share also gets outside audits and obtains actuarial reviews.
"We've never had a member in 35 years lose a dime," Adams said.
However, depositors that relied on another private insurance fund in Rhode Island didn't fare as well.
On New Year's Day 1991, accounts were frozen at 45 credit unions and banklike companies in Rhode Island, because a private company called the Rhode Island Share and Deposit Indemnity Corp. collapsed, according to The New York Times.
The Rhode Island debacle temporarily tied up deposits in 250,000 accounts totaling $1.7 billion.
A year and a half after the Rhode Island insurance company failure, most depositors had recovered most or all of their money, according to The New York Times. Rhode Island boosted sales taxes and issued bonds to cover losses of members at the privately insured financial institutions.
"There were a lot of deficiencies in the Rhode Island program," Adams said.
The Rhode Island insurance fund relied solely on outside auditors to examine its banks and credit unions, while American Share does its own on-site review of credit union financial books, he said. A bank triggered the closing of the Rhode Island private insurance fund, he said.
In addition, Rhode Island credit unions by law had 30 days to decide whether to recapitalize the deposit insurance fund, but, in practical terms, Rhode Island needed credit unions to bolster the fund within hours, not days, Adams said.
Nevada is the most economically troubled state where America Share provides insurance, Adams said. However, he said the insurance company could cope with losses at $883 million-asset Silver State Schools Credit Union of Las Vegas, the second-largest credit union insured by American Share (behind the Los Angeles Firemen's Credit Union). In addition, Adams said, he was confident in the financial strength of Silver State Schools.
If American Share itself became insolvent, the seven Nevada credit unions relying on the private deposit insurance would be uninsured, said George Burns, commissioner of the Nevada Financial Institutions Division.
American Share has $1.42 for every $100 of deposits at insured institutions, compared to $1.28 at the National Credit Union Administration insurance fund, Adams said.
While NCUA charged federally insured credit unions an extra deposit premium this year, "we don't have to charge a premium to make ourselves whole," Adams said.
The private insurance fund posted an operating loss of $6.2 million in the first nine months of this year, compared with an operating profit of $2.8 million in the same period last year.
The Ohio insurance fund backs $250,000 for each member at credit unions and provides additional deposit insurance at some credit unions.
Members of federal credit unions, which often have the word federal in their name, can rely on the National Credit Union Administration to back up $250,000 in deposits.
In addition to its insurance funds, NCUA has regular borrowing authority for $6 billion plus another $30 billion in emergency authority to borrow from the Treasury Department. The federal government backs up NCUA's deposit insurance.
Credit unions insured by American Share could apply for federal deposit insurance from NCUA if American Share was shuttered. However, the applicants would need to satisfy federal standards for asset quality and the composition of their loan portfolios, said John McKechnie, director of public and congressional affairs for the National Credit Union Administration.