2739-S

AN ACT Relating to the Washington credit union share guaranty association; amending RCW 31.12A.050 and 31.12A.090; adding a new section to chapter 31.12A RCW; adding new sections to chapter 31.12 RCW; creating a new section; repealing RCW 31.12A.005, 31.12A.010, 31.12A.020, 31.12A.030, 31.12A.040, 31.12A.050, 31.12A.060, 31.12A.070, 31.12A.080, 31.12A.090, 31.12A.100, 31.12A.110, 31.12A.120, 31.12A.130, 31.12A.140, 31.12A.900, 31.12A.910, 31.12A.920, 31.12A.930, and 31.12A.940; repealing 1996 c -- s 4 (section 4 of this act); providing an effective date; providing an expiration date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature finds that since its creation in 1975 the Washington credit union share guaranty association has provided security to member share accounts and other valuable services to members.

The legislature further finds that although during that period thirty member credit unions have been required to liquidate or merge with other members with the assistance of the association, no depositor has experienced any loss.

The legislature further finds that the changing financial services environment, and ever-increasing competitive pressures have caused the association to review its operation and capacity with the result that the membership has recommended an orderly dissolution, and now seeks the adoption of standards and procedures by the legislature that will direct and ensure an orderly transition to federal share insurance.

Therefore, it is the intent of the legislature to effectuate a fair and orderly transition of association members to federal share insurance, and provide the highest available level of safety for share accounts in keeping with depositors' expectations.

Sec. 2. RCW 31.12A.050 and 1994 c 92 s 227 are each amended to read as follows:

(1) Funding of the association shall be by transfers to a share guaranty association contingency reserve as follows:

(a) Credit unions approved by the director and ratified by the board for membership subsequent to those initial members shall establish a share guaranty association contingency reserve by transferring from their guaranty fund an amount equal to one-half of one percent of the total guaranteeable outstanding share and deposit balances as of the date of membership. When one member credit union is merged into another member credit union, the continuing credit union shall include in its share guaranty contingency reserve the share guaranty contingency reserve of the merged credit union. A nonmember credit union merging with a member credit union must transfer into the share guaranty contingency reserve of the continuing credit union an amount equal to one-half of one percent of the total guaranteeable outstanding share and deposit balances of the nonmember credit union as of the effective date of the merger, as determined by the director.

(b) On the first business day of each year, member credit unions shall make a transfer of an amount sufficient to adjust the contingency reserve to a level of one-half of one percent of the guaranteeable outstanding share and deposit balances as of December 31st of the previous year. If the member's guaranteeable outstanding share and deposit balances decrease from the previous year, any excess which may then appear in the contingency reserve may be transferred to the guaranty fund.

(c) The board may require one additional transfer during the calendar year of an amount not to exceed one-half of one percent of the guaranteeable outstanding share and deposit balances as of December 31st of the previous year. Credit unions which have merged during the year and credit unions which have joined during the year will be subject to the one additional transfer, even if that required transfer occurred before ratification of the joining member or the merger of the two credit unions. The transfer will be based on the guaranteeable share and deposit balances of those credit unions as of the following dates:

(i) For new members, the balances as of the date of membership;

(ii) For members that merge, the sum of the balances as of December 31st of the previous year;

(iii) For a nonmember merging with a member, the sum of the member's balances as of December 31st of the previous year, and of the nonmember's balances as of the effective date of the merger.

(2) Sums specified in subsection (1) of this section may be offset from the statutory transfer requirement to the guaranty fund and shall be retained in the credit union share guaranty contingency reserve as an integral part of its guaranty fund until such time and if necessary to be drawn for the purposes set forth in this chapter.

(3) Members' share guaranty association contingency reserve funds shall be invested in investments as permitted in the bylaws of the association.

(4) The board, in concurrence with the director, may also suspend or diminish the transfer in any given period after reaching a normal operating sufficiency as provided in the bylaws.

(((5) Membership in this association may be terminated upon approval by a majority of the credit union members responding to such a proposal and subject further to acceptance by the national credit union administration of continued share insurance coverage under the national credit union administration share insurance program. Notice of such intentions shall be in writing to the association's board of directors at least twelve months prior to such contemplated action: PROVIDED, That in the event that the credit union board has voted to recommend to the membership liquidation, conversion from state to federal credit union charter, or merger with or conversion to a credit union organized under the laws of another state, the liquidating, converting, or merging member will notify the association in writing within seven days after the credit union board has taken such action. Share guarantee coverage through the association will terminate with the effective date of the new charter or completion of the liquidation or merger as determined by the director.

(6) Except for a credit union merging with a member credit union, any credit union terminating membership in the association shall be assessed its pro rata share of the difference, if any, between the association's current liability for contracted guarantees and the amount from previous assessments currently held for contracted guarantees by the association. Such difference shall be determined by the director at the time the membership is terminated. If the amount of the assessment exceeds the amount of the actual obligation when finalized, the excess shall be refunded in the same proportion as paid.))

Sec. 3. RCW 31.12A.090 and 1994 c 92 s 230 are each amended to read as follows:

(1) In the event a member of the association is placed in liquidation, either voluntary or involuntary, the director or his or her representative shall determine as soon as is reasonably possible the probable assessment, if any, resulting therefrom to its shareholders. If an assessment seems to be indicated, the director or his or her representative shall promptly inform the association in writing of the probable amount of such assessment. In determining the probable assessment for the liquidating member, charges, if any, for services of the director or his or her representative, or his or her staff, as well as accrued but unpaid interest or dividends on share accounts, shall not be deemed liabilities of the liquidating credit union; and, with the consent of the association, all illiquid holdings (furniture, fixtures and other personal property) of the liquidating member, at the fair recoverable value thereof, as determined by the director or his or her representative, may be excluded as assets. In determining the assessment as to a particular share account, the director or his or her representative shall first deduct the amount of any accrued and currently payable obligation of the shareholder to the liquidating credit union.

(2) Within thirty days after receipt by the association of the foregoing information, the board shall notify the remaining members of the association of the aggregate amount required to make good the probable net loss to share accounts, subject to the following conditions:

(a) The amount of loss to be made good to any shareholder shall not be less than provided by the national credit union administration share insurance program, with authority vested in the association to increase the coverage.

(b) To the amount of the assessment as otherwise determined pursuant to this section, the board may add such amount as it may deem to be reasonably necessary to cover its clerical, mailing and other expense connected with the assessment and distribution of the proceeds thereof to shareholders of the liquidating credit union, not to exceed actual costs of such mailing and clerical services.

(c) The amount of the assessment shall be prorated among the assessed members against their share guaranty contingency reserve: PROVIDED, That members shall not be liable for any amount of assessment exceeding their share guaranty contingency reserve or for any assessments exceeding those permitted in RCW 31.12A.050 as now or hereafter amended.

(d) That a plan for an orderly and expeditious liquidation be presented to the board of directors for their consideration and approval. In cases where a central or other eligible credit union is authorized to act as liquidator or liquidating agent, the association would provide an indemnity against loss to such authorized credit union.

(3) In case of liquidation the board shall cause written notice to each member only if a potential assessment is indicated and the probable amount of such contingency as it relates to a percentage of their total share guaranty contingency reserve. The actual assessment shall be paid by members upon completion of liquidation or sooner, as determined by the board of directors. In all cases the total reserve structure of a liquidating credit union, including its share guaranty contingency reserve, shall be utilized in concluding the liquidation.

(4) The association may also assess members under this section, as if a credit union were placed in liquidation, in order to provide financial assistance to facilitate conversion of the credit union to federal insurance or merger with another credit union that is federally insured or has applied for federal insurance.

NEW SECTION. Sec. 4. A new section is added to chapter 31.12A RCW to read as follows:

(1) Members with a composite capital, asset quality, management, earnings, and liquidity rating by the department of three, four, or five shall, by September 1, 1996, file a:

(a) Completed application for insurance of share accounts with the national credit union administration to become insured under the federal share insurance program, with a copy promptly forwarded to the director by the applicant;

(b) Completed application to merge into a credit union with the director under RCW 31.12.695; or

Members with a composite capital adequacy, asset quality, management, earnings, and liquidity rating of one or two shall accomplish one of the acts set forth in (a) through (c) of this subsection by December 1, 1996.

Each member shall promptly forward a copy of the application or notice to the association.

If a member fails to file the application or notice as required by this section the failure will constitute an unsafe and unsound condition or practice that seriously jeopardizes the interests of the member's depositors and shareholders. The failure shall constitute grounds for the director to issue a temporary order under RCW 31.12.595 requiring the member to complete the application or notice and to take such other action as the director deems necessary, and shall constitute grounds for the director to issue a notice of charges under RCW 31.12.585.

(2) The association's guarantee of a member credit union will cease upon the member's completion of conversion to insurance of share accounts under the federal share insurance program, or merger into a federally insured credit union, or liquidation, as applicable.

(3) If a member whose application for insurance of share accounts is approved by the national credit union administration fails to complete the insurance conversion in the time allowed by the national credit union administration, the failure will constitute an unsafe and unsound condition or practice that seriously jeopardizes the interests of the member's depositors and shareholders. The failure shall constitute grounds for the director to issue a temporary order under RCW 31.12.595 requiring the member to complete the insurance conversion and to take such other action as the director deems necessary, and shall constitute grounds for the director to issue a notice of charges under RCW 31.12.585. The authority granted to the director under this subsection may be exercised only after January 1, 1998.

(4) In addition to the action authorized in subsection (3) of this section, if a member fails to obtain federal share insurance, merge into a federally insured credit union, or liquidate by December 31, 1998, the director may appoint a liquidating agent for the involuntary liquidation of the member under RCW 31.12.675 and 31.12.685 as if the member were insolvent.

(5) Members that obtain share insurance under the federal share insurance program or merge with a credit union insured under the federal share insurance program shall continue to maintain their contingency reserve under RCW 31.12A.050, and capital reserve required by the association, and shall continue to be liable for assessments under RCW 31.12A.090, as if they were members, until December 31, 1998.

(6) The contingency and capital reserve required by the association shall be included as capital for determining composite capital adequacy, asset quality, management, and earnings and liquidity ratings by regulatory authorities.

NEW SECTION. Sec. 5. A new section is added to chapter 31.12 RCW to read as follows:

Credit unions must be insured by the federal share insurance program under the national credit union administration on or before December 31, 1998.

NEW SECTION. Sec. 6. A new section is added to chapter 31.12 RCW to read as follows:

(1) After December 31, 1998, credit unions must be insured under the federal share insurance program or an equivalent share insurance program as defined in this section. For the purposes of this section an equivalent share insurance program is a program that: (a) Holds reserves proportionately equal to the federal share insurance program; (b) maintains adequate reserves and access to additional sources of funds through replenishment features, reinsurance, or other sources of funds; and (c) has share insurance contracts that reflect a national geographic diversity.

(2) Before any credit union may insure its share deposits with a share insurance program other than the federal share insurance program, the director must make a finding that the alternative share insurance program meets the standards set forth in this section, following a public hearing and a report on the basis for such finding to the appropriate standing committees of the legislature. All such findings shall be made before December 1st of any year and shall not take effect until the end of the regular legislative session of the following year.

(3) Any alternative share insurance program approved under this section shall be reviewed annually by the director to determine whether the program currently meets the standards in this section. The director shall prepare a written report of his or her findings including supporting analysis and forward the report to the appropriate standing committees of the legislature. If the director finds that the alternative share insurance program does not currently meet the standards of this section the director shall notify all credit unions that insure their shares under the alternative share insurance program, and shall include notice of a public hearing for the purpose of receiving comment on the director's finding. Following the hearing the director may either rescind his or her finding or reaffirm the finding that the alternative share insurance program does not meet the standards in this section. If the finding is reaffirmed, the director shall order all credit unions whose shares are insured with the alternative share insurance program to file, immediately, an application with the national credit union administration to convert to the federal share insurance program.

NEW SECTION. Sec. 7. The following acts or parts of acts are each repealed:

(1) RCW 31.12A.005 and 1982 c 67 s 1 & 1975 1st ex.s. c 80 s 2;

(2) RCW 31.12A.010 and 1994 c 92 s 225, 1985 c 7 s 98, 1983 c 48 s 1, 1982 c 67 s 2, 1980 c 41 s 11, & 1975 1st ex.s. c 80 s 3;

(3) RCW 31.12A.020 and 1975 1st ex.s. c 80 s 4;

(4) RCW 31.12A.030 and 1985 c 7 s 99, 1982 c 67 s 3, & 1975 1st ex.s. c 80 s 5;

(5) RCW 31.12A.040 and 1994 c 92 s 226, 1982 c 67 s 4, & 1975 1st ex.s. c 80 s 6;

(6) RCW 31.12A.050 and 1996 c ... s 2 (section 2 of this act), 1994 c 92 s 227, 1983 c 48 s 2, 1982 c 67 s 5, 1980 c 41 s 12, & 1975 1st ex.s. c 80 s 7;

(7) RCW 31.12A.060 and 1982 c 67 s 6 & 1975 1st ex.s. c 80 s 8;

(8) RCW 31.12A.070 and 1994 c 92 s 228 & 1975 1st ex.s. c 80 s 9;

(9) RCW 31.12A.080 and 1994 c 92 s 229 & 1975 1st ex.s. c 80 s 10;

(10) RCW 31.12A.090 and 1996 c . . . s 3 (section 3 of this act), 1994 c 92 s 230, 1982 c 67 s 7, & 1975 1st ex.s. c 80 s 11;

(11) RCW 31.12A.100 and 1994 c 92 s 231 & 1975 1st ex.s. c 80 s 12;

(12) RCW 31.12A.110 and 1975 1st ex.s. c 80 s 13;

(13) RCW 31.12A.120 and 1994 c 92 s 232 & 1975 1st ex.s. c 80 s 14;

(14) RCW 31.12A.130 and 1975 1st ex.s. c 80 s 15;

(15) RCW 31.12A.140 and 1994 c 92 s 233 & 1975 1st ex.s. c 80 s 16;

(16) RCW 31.12A.900 and 1975 1st ex.s. c 80 s 17;

(17) RCW 31.12A.910 and 1975 1st ex.s. c 80 s 18;

(18) RCW 31.12A.920 and 1975 1st ex.s. c 80 s 19;

(19) RCW 31.12A.930 and 1975 1st ex.s. c 80 s 21;

(20) RCW 31.12A.940 and 1975 1st ex.s. c 80 s 20; and

(21) 1996 c ... s 4 (section 4 of this act).

NEW SECTION. Sec. 8. (1) Sections 1 through 4 of this act are necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect immediately.

(2) Section 7 of this act shall take effect December 31, 2000.

NEW SECTION. Sec. 9. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.