U.S. Saves Major Credit Unions
Posted By thestatedtruth.com on September 24, 2010
Two years after the financial crisis, the federal government has stepped in to stabilize a crucial part of the credit-union sector knocked down by losses on subprime mortgages. A summary of an article from the Wall Street Journal is reviewed below.
Regulators announced Friday a rescue of the nation’s wholesale credit unions, underpinned by a federal guarantee valued at $30 billion or more. Wholesale unions don’t deal with the general public but provide essential back-office services to thousands of other credit unions across the U.S.  The majority of retail credit unions are thought to be sound, but they are exposed to the losses through the industry’s insurance fund.
Friday’s moves include the seizure of three wholesale credit unions, plus an unusual plan by government officials to manage $50 billion of troubled assets inherited from failed institutions. To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets.
Members United Corporate Federal Credit Union in Warrenville, Ill., Southwest Corporate Federal Credit Union of Plano, Texas, and Constitution Corporate Federal Credit Union, Wallingford, Conn., which had a total of $19.67 billion in assets as of July, were taken into conservatorship by federal regulators.
Losses on the mortgage-backed securities held by the five seized credit unions are expected by regulators to total about $15 billion. Wiping out the capital of the failed institutions will cover a chunk of those losses. But the remaining $7 billion to $9.2 billion eventually will be passed along to the nation’s 7,445 federally insured credit unions in the form of future assessments.
In an effort to minimize and spread out losses that must be absorbed by the credit-union industry, regulators said they will move all the risky securities into a good bank-bad bank structure. NCUA officials will manage the $50 billion portfolio, or “bad bank,” of the failed wholesale institutions.
Friday’s moves could deepen tensions between regulators and retail credit unions that withstood the financial crisis and resent having to bear financial costs caused by the mistakes of wholesale institutions.
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