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Agency backs credit union deposits

Wed Jan 28

WASHINGTON – Federal regulators on Wednesday moved to guarantee tens of billions of dollars in uninsured deposits at institutions that provide wholesale financing for U.S. credit unions, the latest in a series of actions to shore them up in the face of financial stress.

The National Credit Union Administration announced the move, saying it was intended "to add stability to and strengthen corporate credit unions."

Corporate credit unions provide wholesale financing and investment services to retail credit unions. Some of the 28 corporate credit unions in the U.S. have sustained steep losses on paper from the depressed value of the mortgage-backed securities they hold.

The majority of credit unions, which are cooperatives owned by their members, are financially strong.

In December the NCUA, which oversees some 8,100 federally insured credit unions, made more than $40 billion available to support several corporate credit unions with a new borrowing from the Treasury Department.

In the latest move, the agency is automatically guaranteeing uninsured deposits at all corporate credit unions through February and then on a voluntary basis through Dec. 31, 2010. The uninsured deposits amount to around $80 billion, according to The Wall Street Journal.

The NCUA said it also is injecting $1 billion of fresh capital into U.S. Central Corporate Federal Credit Union, an institution in Lenexa, Kan., that is a wholesale financial center for the nation's corporate credit unions with about $37.3 billion in assets.

U.S. Central said separately Wednesday that it expects to report a substantial loss for 2008, due to around $1.2 billion in charges for impairments in its holdings of mortgage-backed securities.

In addition, the NCUA issued for public comment a proposed rule on restructuring the corporate credit union system with an eye to enhancing its stability.
The National Association of Federal Credit Unions, the industry's trade group, said it welcomed the regulators' move at "a serious time for the entire financial industry, including credit unions."

Sourece: http://news.yahoo.com