* U.S. Central has $34 billion in assets
* Settles for all other wholesale credit unions
* Western Corporate also seized
* Action comes as three small banks closed by FDIC
(Adds NCUA spokesman, moves to bolster insurance fund)
By Karey Wutkowski
WASHINGTON, March 20 Regulators seized the top
clearinghouse for U.S. credit unions, citing a critical
deterioration in the finances of the provider of services to
thousands of retail credit unions.
The National Credit Union Administration (NCUA) took
control of U.S. Central Federal Credit Union, a huge wholesale
credit union with about $34 billion in assets based in Lenexa,
It also seized Western Corporate (WesCorp) Federal Credit
Union of San Dimas, California, another corporate credit union
with $23 billion in assets.
Stress tests of corporate credit unions had uncovered an
"unacceptably high concentration of risk" at these two
institutions, the regulator said in a statement.
The immediate costs of the takeover are coming out of a $7
billion industry-maintained insurance fund, but will mean
higher premiums levied on retail credit unions.
The action highlighted strains in the nonprofit banking
sector that has recently been touted as a source of new
lending, even as many for-profit banks limit their lending and
receive billions of dollars of taxpayer-funded capital
U.S. regulators also seized another three small banks on
Friday, bringing the total to 20 so far this year.
U.S. Central and WesCorp were carrying the bulk of the
soured mortgage-backed securities that have been causing woes
to the corporate credit union industry, said NCUA spokesman
"We've been intervening in the corporate networks... for
several months now and it just got to a critical stage,"
McKechnie said. "In the last couple of months the problems have
moved from liquidity to be more capital and asset-based."
In January the NCUA injected $1 billion into U.S. 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
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.
The NCUA said service will continue uninterrupted at U.S.
Central and WesCorp, and said member accounts are guaranteed
through Dec. 31, 2010.
"When a credit union or a corporate credit union is taken
into conservatorship... it remains business as usual, all
insured deposits are protected," said Henry Kertman, spokesman
for the California Credit Union League.
A HIT TO INDUSTRY EARNINGS
U.S. Central has 26 corporate credit union members and says
it provides settlement services to 100 percent of corporate
credit unions and 93 percent of all U.S. credit unions.
WesCorp based in San Dimas, California, has approximately
1,100 retail credit union members, the NCUA said.
McKechnie said the industry will have to pay an additional
$1.2 billion to cover the resolution of the the two
institutions, on top of a $4.7 billion assessment the NCUA
announced earlier this year for its actions in January.
"The direct impact is going to be to the earnings of credit
unions as they pay to replenish the fund," McKechnie said.
He said the NCUA does not anticipate having to tap into its
$100 million line of credit with the U.S. Treasury Department,
meaning taxpayers will not be on the hook for the latest
dramatic financial rescue.
Legislation moving through Congress would increase the
credit union industry's borrowing authority to $6 billion, and
give it more time to replenish its insurance fund.
McKechnie said he would not speculate about any future
actions the NCUA might have to take to stabilize the credit
union industry, which he said is "very well capitalized at this
"I do think that we have taken whatever steps are necessary
to maintain a well-functioning, safe and sound credit union
industry," McKechnie said.
Separately, the U.S. Federal Deposit Insurance Corp said it
had found other banks to acquire the deposits of TeamBank
TFIN.O 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.
(Reporting by Karey Wutkowski, Helen Chernikoff and Elinor
Comlay; Editing by Tim Dobbyn)