Credit Union Bailout: Should You Be Worried?
The subprime mortgage mess just won't die -- on Friday, federal regulators took over three wholesale credit unions that had made bad bets on mortgage-backed securities and announced it will back $30 billion in bonds to stabilize the entire sector. Wholesale credit unions invest money and provide back office support for the retail credit unions that directly service members; some of them tried to goose returns by buying subprime-backed securities and saw their portfolios wiped out. As a result, five of the nation's 27 wholesale credit unions have been taken over by the government in the last year-and-a-half.
The overall bailout could end up costing more than $9 billion, but regulators say that new rules would prevent wholesale credit unions from making such risky investments in the future. If you're one of the 92 million (and growing) members of a credit union, though, should you be worried about your assets?
The short answer is no, since at all federally chartered credit unions and most state-chartered ones, the National Credit Union Administration insures deposits of up to $250,000 -- the same limit as at federally chartered banks. And the latest bad news doesn't directly concern retail credit unions (moreover, far fewer retail credit unions have failed than regular banks, as well -- 66 versus more than 290 since 2008, according to the Wall Street Journal).
But part of the bailout costs for these and other failures will eventually be passed along to the rest of the nation's federally insured credit unions via increased assessments and higher insurance premiums. And if your credit union has trouble paying these, it may have to lower rates on deposits and/or increase rates on loans, two of the primary advantages credit unions have over traditional banks in the first place. The good news just keeps coming, doesn't it?
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