Back to basics: Share insurance

The failure of Silicon Valley Bank (SVB) and Signature Bank just over a week ago proved to be one of the biggest stories for the financial services industry in the past several years. Deposit insurance played a large role in the story, as initial reporting indicated that a number of SVB’s customers could lose millions due to having large amounts of uninsured funds at the bank. Ultimately the federal government stepped-in and guaranteed that SVB’s customers would get all their funds back. The National Credit Union Administration (NCUA), for their part, has touted the safety of the credit union industry by stating that “[n]o one has ever lost a single penny of insured share deposits within the credit union system.”

For credit unions, this ordeal raised some questions regarding the share insurance fund and how member shares are insured. NAFCU plans to publish a longer article in our Compliance Monitor in the coming weeks that will discuss the ins-and-outs of share insurance. For now, let’s review some questions the Compliance Team has received recently regarding share insurance:

How is Coverage Determined?

Generally speaking, share insurance coverage is based on the type of account in question. In NAFCU’s Compliance Roadmap we refer to the different account types as “buckets.”

For example, a member’s single-ownership share accounts (i.e. accounts owned solely by the individual) will be aggregated together for share insurance purposes, up to the standard maximum share insurance amount (SMSIA) of $250,000. That’s one “bucket.” Joint accounts, on the other hand, are a separate “bucket” and are insured separately from individual accounts – a member’s interests in all his or her joint accounts will be aggregated together and that “bucket” of joint account funds will be insured up to the SMSIA of $250,000. Payable-on-death (POD) accounts are insured separately from other types of accounts. These accounts are formed when a member names beneficiaries to the account and indicates an intent for the funds to transfer to the beneficiaries upon his or her death – this creates a “revocable trust account.”

 

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