Federal regulators announced late Friday that they have placed a San Dimas corporate credit union into conservatorship due to liquidity concerns.
The National Credit Union Administration appointed itself conservator of Western Corporate Federal Credit Union, which has been contending with substantial paper losses on investments in mortgage-backed securities. The organization did the same for the nation’s largest credit union, U.S. Central Federal Credit Union in Lenexa, Kan.
Corporate credit unions do not serve individual consumers; instead, the largely unseen network of corporate credit unions provide liquidity and investment services to retail credit unions. There are just 27 such institutions in the country.
Western Corporate, known as WesCorp, has 1,100 retail credit union members and assets of more than $23 billion.
In January, the institution reported unrealized losses of $2.6 billion in its investment portfolio, nearly half of which consists of securities backed by subprime or Alt-A mortgages. In a statement, regulators said an internal analysis of the portfolio showed that the value had declined significantly since January, “contributing to diminished liquidity and payment system capacities, as well as further loss of confidence by member credit unions and other stakeholders.”
U.S. Central, which has assets of $34 billion, recently announced an unexpected $1.1 billion loss, which sent waves of concern through the credit union industry.
In response, regulators injected $1 billion into the institution and announced a plan to provide up to $3.7 billion more to the nation’s corporate credit unions. As of Friday, the NCUA said the total amount needed to assist the industry could be as high as $5.9 billion. The funds for the plan would come from the deposit insurance fund a proposal that has upset retail credit unions, which pay fees to support the fund.
The NCUA said it took over the two institutions “to protect retail credit union deposits and the interest of the National Credit Union Share Insurance Fund.”
Services at both institutions will continue uninterrupted, regulators said.
