The First Time Federal Share Insurance Paid Out, It Was in Pierre, South Dakota

By Mark Treichel  |  Credit Union History

Every credit union member today walks in knowing their money is federally insured. The sticker is on the door. Nobody thinks about it.

But in 1970, that protection was brand new. And the first time it was ever tested — the first time the fund actually paid members of a failed credit union — it happened in a small farmers’ credit union in South Dakota.

The story is in NCUA’s 1971 annual report, the first full year of federal share insurance.

Administrator Herman Nickerson Jr.’s letter opening NCUA’s 1971 Annual Report (published August 1972).

"The big story of 1971"

President Nixon signed Public Law 91-468, creating federal insurance for credit union member accounts, on October 19, 1970. NCUA spent the next year putting it into practice. Administrator Herman Nickerson Jr. opened the 1971 annual report this way:

“The big story of 1971 was the National Credit Union Administration’s implementation of Public Law 91-468, ‘an Act to provide insurance of member accounts in State and federally-chartered credit unions . . .’ signed by President Nixon on October 19, 1970.”

It moved quickly. By the end of August 1971, almost 90% of operating federal credit unions had their certificates of insurance. Some couldn’t qualify under the original terms, so Congress passed an amendment, signed December 23, 1971, giving those “deferred for insurance” credit unions a two-year certificate. By year-end, federal share insurance covered every federal credit union. Another 793 state-chartered credit unions had signed up as well.

The terms look modest now:

•        Coverage of $20,000 per account

•        A premium of one-twelfth of 1% of member accounts

•        A $100 million line of borrowing authority from the U.S. Treasury “for use in unforeseen emergencies”

The first payout

The report’s chapter on liquidations tells the story in two plain sentences. During 1971, NCUA’s Administrator placed one insured, insolvent federal credit union into involuntary liquidation and appointed himself liquidating agent.

From the 1971 Annual Report’s section on liquidations.

“This action resulted in the first payout to credit union members from the Insurance Fund. The credit union involved was the Pierre Farmers Union Co-op Federal Credit Union, Pierre, South Dakota.”

That was it. No headline, no ceremony. The system worked the way it was designed to, and the members of a small farmers’ credit union in South Dakota’s capital city were the first to find out.

What it replaced

The same chapter shows what the world looked like before insurance. Of the federal credit unions that finished liquidating in 1971, almost 90% returned 100 cents on the dollar or more to their members. But 41 did not. In those, 6,588 members shared losses of $148,944 — an average of almost $23 each.

Twenty-three dollars doesn’t sound like much. In 1971 it was real money to the kind of member a small occupational or farm credit union served. And it was exactly the kind of loss share insurance was built to end.

Members noticed. Federal credit union shares grew a record $1.6 billion in 1971, up 20.5% — the fastest growth since 1955. Nickerson wrote that share insurance “seems to have been one of the main factors.”

Why it still matters

Coverage today is $250,000, and the fund has carried members through every crisis since — the rate shocks of the early 1980s, the failures of the early 1990s, the corporate credit union crisis of 2009. It started with $20,000 per account and one small payout in Pierre.

Sources

National Credit Union Administration, Annual Report 1971 (published August 1972): Administrator’s letter; “Chartering, Insurance and Liquidation” section; Credit Union Share Insurance Fund budget statement. As a U.S. government publication, the report is in the public domain.