US regulators take control of two credit union clearinghouses

The National Credit Union Administration (NCUA), the federal agency that regulates US credit unions, has taken control of US Central Federal Credit Union, a Lenexa, Kansas-based wholesale credit union with about $34 billion in assets.

The federal regulator also seized Western Corporate (WesCorp) Federal Credit Union of San Dimas, California, another corporate credit union with $23 billion in assets.

They were seized following a critical deterioration in the finances of the providers of services to thousands of retail credit unions, the agency said in a release.

In January the NCUA injected $1 billion into US Central after the corporate credit union suffered dramatic declines in the value of mortgage-backed securities it had bought.

Corporate credit unions are the retail credit union's credit union, providing services including lending, and check and payment clearance services.

The NCUA also moved in January to guarantee the $80 billion that regular credit unions have on deposit in the corporate network. The moves were considered a bailout of the U.S. credit union network.

Credit union retail customer deposits are insured up to $250,000 per account, in line with bank deposits, a step taken last year as part of a wider effort to increase consumer confidence in banking.

Both US Central Federal Credit Union and Western Corporate Federal Credit Union have been placed under conservatorship to stabilise the corporate credit union system and resolve balance sheet issues, the regulator said in a release.

Service continues uninterrupted at both US Central Corporate Federal Credit Union and WesCorp, and members are free to make deposits and access funds, the release noted.

The takeover would help the two out of a $7 billion industry-maintained insurance fund, but it would also mean higher premiums levied on retail credit unions.

The Federal Credit Union Act authorizes the NCUA board to appoint itself conservator when necessary to conserve the assets of a federally insured credit union, preserve member assets and protect the NCUSIF.

''Corporate credit unions are chartered to provide products and services to the credit union system. These products and services will continue uninterrupted and there is no direct impact by NCUA's actions on the 90 million credit union members nationwide. Credit unions that serve consumers remain very strong, with net worth exceeding 10 per cent of assets, healthy growth in assets, membership, and loan portfolios despite the difficult economy,'' the release said.

The member accounts of both credit unions are guaranteed under provisions of the previously announced NCUA Share Guarantee Programme, through 31 December 2010. The programme extends NCUSIF coverage to all funds held by the two corporate credit unions.

Since the NCUA board first began taking stabilisation actions, liquidity has demonstrated marked improvement. The reliance on external borrowing has declined from $11.8 billion to $2.1 billion.

NCUA said it will continue to take any and all steps necessary to preserve a well-functioning system of corporate credit unions and to protect the assets of natural person credit unions and their members during the ongoing broader financial market dislocation.

While  the latest action highlights strains in the nonprofit banking sector that has recently been touted as a source of new lending, US regulators have also seized three more small banks on Friday, bringing the total to 20 so far this year.

The US Federal Deposit Insurance Corporation said it had found other banks to acquire the deposits of TeamBank of Paola, Kansas, and Colorado National Bank of Colorado Springs, Colorado. But the FDIC became receiver of FirstCity Bank of Stockbridge, Georgia, and approved the payout of its insured deposits.