The Western Kentucky University Foundation lost $120,000 last week.
The money was a bond invested in Washington Mutual. Government officials, who took over WaMu after the bank failed last month, decided to not refund money to bond holders, said Tom Hiles, vice president for institutional advancement.
Bonds are bought as investments in banks and companies. They are sold by the bond holder with interest so that the holder makes money off the investment.
Government officials decided to refund money only to account holders with Federal Deposit Insurance Corporation insured accounts, Hiles said. Accounts were insured by the FDIC up to $100,000 when WaMu failed, but they are now insured up to $250,000, finance professor Johnny Chan said.
Accounts with balances up to the FDIC insured amount will be refunded to the account holder because that money doesn't belong to the bank, he said. Money was returned to account holders because, by law, banks aren't allowed to use account holders' money for other operations, Chan said.
Western lost the WaMu bond because bonds, unlike money in bank accounts, are used to fund the bank's operations such as making loans, he said. When the bank failed, that money was lost.
Western officials have made the amount of each of Western's accounts under the FDIC's refund limit, Hiles said.
Not getting the bond back was a loss, but it made up 1 percent of Western's fixed income portfolio, Hiles said. A fixed income portfolio is the amount of money a business has invested in stocks and bonds.
No other bonds are in danger of being lost, Hiles said. "It's a loss, and obviously we're focused on making sure that doesn't happen again," he said.
Ann Mead, vice president for finance and administration, said the financial crisis hasn't affected Western funds outside of the WKU Foundation because state laws protect them, the Herald previously reported.