Government seizes three credit unions with $50 bn in toxic assets

Discussion in 'Economics' started by ASusilovic, Sep 25, 2010.

  1. WASHINGTON (MarketWatch) — The federal government on Friday seized three undercapitalized wholesale credit unions and unveiled a package of regulations to have the industry absorb losses on a $50 billion portfolio of toxic mortgage securities.

    The seizure on Friday of Warrenville, Ill.-based United Corporate Federal Credit Union; Southwest Corporate Federal Credit Union of Plano, Tex.; and Constitution Corporate Federal Credit Union of Wallingford, Conn., takes to five the number of wholesale credit unions under government control.

    In March 2009, the National Credit Union Administration seized U.S. Central Federal Credit Union and Western Corporate Federal Credit Union.

    These credit unions, known as corporate credit unions, don’t serve retail clients but provide liquidity and payment services and other facilities to traditional credit unions.

    The NCUA also adopted rules to package and auction off the mortgage securities from the seized institutions with a government guarantee. To facilitate the sales, the government plans to issue about $35 billion in government-guaranteed bonds. At the same time, credit unions will be required to pay annual assessments over the next decade or so to cover whatever losses are incurred after the mortgage securities are sold.

    NCUA Chairman Debbie Matz sought to assure observers that taxpayers would not need to cover any losses. Matz estimates that the credit-union system will have to pay between $7 billion and $9.2 billion into a NCUA stabilization fund to cover the losses from the five credit unions. She added that with the three additional seizures, about 70% of the assets of the wholesale credit-union industry is now under conservatorship.

    “The costs will be borne entirely by the credit-union industry,” Matz commented. “This plan puts consumers first and ensures that there will be no loss to taxpayers. This plan also provides an orderly transition to a new regulatory regime for corporate [credit unions].”

    The asset sales will take place in a series of auctions over the next four to five months, she said, with the first auction expected in October. In a conference call with reporters, Matz also said that retail credit-union customers, of which there are roughly 90 million, will not be affected.

    The specific amount of next year’s assessments will not be determined until sometime next year.

    What’s more, the NCUA adopted capital, leverage, risk concentration and governance rules for the corporate credit-union industry. The rule also raises the standard for board-member qualifications at the corporate credit unions.

    Health of the industry

    Analysts say credit-union performance more broadly is improving. “They’re doing a lot better lately,” according to Lisa Humphrey, vice president of product management at Highline Financial LLC, which analyzes the banking industry.

    Highline publishes solvency ratings on banks, savings and loan institutions and credit unions. The ratings measure capital adequacy, asset quality, earnings and liquidity.

    At the end of June, there were 99 credit unions that faced an extreme risk of failure, Highline data showed. A year earlier, there were 138 credit unions in that situation.

    Last year, 15 credit unions failed. This year, 15 have failed so far, according to the firm’s data. In contrast, more than 100 banks have failed so far in 2010.
  2. Dont worry ,Be happy.

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  3. OK, so what am I missing here? If there is no risk to taxpayers...then why did taxpayers have to become involved? If I don't need a loan...then why would I get one?

    As for the last statement in the article (as I quoted it above) - I LOVE IT!!!!! All I can hear is some "Fed" employee yelling at some poor people, "Hey, you poor people need to cough up some the Fed can give money to the that is!" The gov't is asking for money...from an industry that it is bailing out - NICE! Gee, let us penalize the thinking and profitable credit unions, so we can save the dumb, stupid risk taking credit unions!

  4. dtan1e


    the banks should also pay back all the free money gifts disguised under the 4% treasury so called profits and also all the bonus for so called profits
  5. You are FAR TOO KIND...they should pay back IN BLOOD the so called profits from the 4% treasuries!!!