You may have read in the press
that two “big credit unions” were taken over
by the government on Friday. Here are some points we want
you to know:
These two credit unions (U.S. Central Federal
Credit Union, Lenexa, KS and WesCorp Federal Credit
Union, San Dimas, CA) are not regular credit
unions like those
that serve consumers. They are among 28 wholesale
institutions that provide liquidity, investment and payments
services to credit unions like yours. The two “corporate” credit
unions were placed into conservatorship, which
means they are still operating normally but the U.S.
government
has taken them over.
Because of the nature of what they do, these
corporate credit unions operate in the capital markets
and hold highly
rated, investment-grade securities. Like
so many others in those markets, they have seen investment
values decline in the current economic downturn, resulting
in
some actual losses. In the case of these two corporate
credit unions,
losses were significant enough that the government
had
to step in.
Member deposits that regular credit unions have
placed in these corporates are federally insured and
backed by the full faith and credit of the U.S. Government. And the U.S. Government has guaranteed deposits
beyond $250,000 in these institutions.
What does all
this mean for members of regular credit unions? It’s
business as usual. The quality service
you receive from your credit
union will
continue. Service to you is not affected by
these government actions.
And of course your own funds at the credit union are
perfectly safe. Your deposits there are federally
insured up to $250,000 by the National Credit Union Share
Insurance
Fund and backed by the full faith and credit of the U.S.
Government, just as the FDIC does for bank deposits.
No credit union
member has ever lost a dime of federally insured
funds.
In fact the credit union sector overall is solid
and healthy. The industry’s federal regulator, Michael
Fryzel, said as much on Friday when addressing the corporate
situation: “Credit unions that serve consumers
remain very strong,”
Similarly, Congressman Barney Frank, the chairman
of the House Financial Services Committee, said recently
that “If credit unions made all of the mortgage
loans, then there would have been no subprime crisis,
and therefore
no economic crisis.” And just a week ago, the Wall
Street Journal published a feature pointing out
that while some “corporate” credit unions
have had problems, in today’s economy regular
credit unions that serve consumers remain a safe haven
and offer great value.
Also on the point of safety: Credit unions are
very well capitalized, with a capital cushion stronger
than you would find at most banks. As an
industry,
our average capital-to-assets ratio is more than 10%.
That’s
considerably higher than the 7% industry standard for
being “well
capitalized” and higher than the banking industry’s
average of about 9%. This 10% capital means credit
unions are well positioned to absorb the costs of this
action
by the agency (which intends to charge higher deposit
insurance premiums) with minimal outward impact on
our members.
Credit unions have been serving members in
the U.S. for 100 years, through good times and bad. We
are
well positioned to remain strong.