New Regulations for Credit Unions

Credit Unions have gained a reputation with people across the country for being reliable banking safe havens often offered to them straight through their employer or other membership organizations.  Although credit unions are traditionally seen as sound conservative places to bank with, borrow from, and do business with, the recent financial crisis has left credit unions no exception to getting caught in tough times.

Several wholesale credit unions have received government financial aid or have even been seized by regulators recently.  Wholesale credit unions act as a backbone to provide small retail and local credit unions to provide investment services and payment clearing.  Several wholesale credit unions lost financial footing when the credit crisis hit due to losses on complex investments such as subprime mortgage bonds.

Last year, shortly after the credit crisis came into fruition, two wholesale credit unions in Kansas and California were sized by regulators who took control of their operations, repackaging over $35 billion of troubled mortgage assets that weighed the institutions down.  By the end of this past September, three more wholesale credit unions were seized by the National Credit Union Administration.  The entities, which were located in Connecticut, Illinois, and Texas, will now undergo an overhaul which will entail the repackaging of bad assets and offering them for sale with a federal guarantee.  Mirroring new general banking regulations, the new credit union regulations will require wholesale credit unions to hold more capital and improve their risk management and governance practices.

Consumers should be able to rest easy about the new regulations and the aid to wholesale credit unions, at least for now.  Of the 27 wholesale credit unions that exists in the United States, only 5 have needed seizure in the last 18 months.  While the industry is undergoing changes, it is expected that consumers and borrowers will experience no disruptions in their everyday banking.  The National Credit Union has administered and emergency guarantee on all deposits and clients are now insured up to $250,000 per account.  National Credit Union chairwoman Debbie Matz reports that credit unions will be liable for repaying back the estimated $9.2 billion in aid that they received so that no tax payers will be burdened.