More on credit unions
From a post to the lbo-talk listserv, which I moderate:
A big CU failed in South Florida a few years back. They’d been investing in subprime CDOs, actually. Another few failed in FL and out west – they had large member business ADC loan exposure to projects that stalled at the acquisition phase. Just browse the NCUA news center and marvel at the number of CUs placed into conservatorship or acquired by other CUs in NCUA-facilitated firesales
I’ve seen stats saying 2/3s of credit unions don’t have any meaningful member loans, and that the dollar majority of all CU business loans is simple syndicate participation by the very largest of CUs.
These guys largely fail on their own terms (lack of scale/competence – looking at one of these recent failures, I see it had 429 members and $1.3MM in asssets; how the hell can you even keep the lights on?) or quickly grow into facsimilies of the big boy. [See below-Ed.].
Oh, and the NCUA’s being pushed to allow greater use of derivatives to moderate interest rate risk as we speak.
A visit to the NCUA’s news pages do confirm this. For example:
- Last August, the NCUA sued Goldman Sachs over the sale of some bad mortgage securities. Earlier, they’d sued JP Morgan and RBS on similar grounds, and more suits are anticipated. The bad securities—which, according to the NCUA, the Wall Street bankers had (familiarly) claimed were blue chip—led to the failure of five wholesale CUs, which are entities that act as bankers to smaller CUs.
- On October 27, the NCUA put the Birmingham (Alabama) Financial Federal Credit Union—which had just 429 members and $1.3 million in assets—into conservatorship because of fatal losses. Unlike too big to fail, this one was too small to live.
- On September 23, the NCUA placed the Chetco Federal Credit Union, serving a region on the California–Oregon border, into conservatorship. It had bought pieces of other CU’s loans, and held $10 million in loans on foreclosed real estate. Buying pieces of other institution’s loans is what you do when you don’t have enough good options of your own.
- On July 22, the NCUA put the Saguache County (Colorado) Credit Union into conservatorship. Too many of its loans had gone bad. Its focus, reported The Denver Post, was community development in an underbanked part of the state. This is a reminder that credit is no cure for poverty and underinvestment.
And so on. All of which means that CUs are subject to the same problems as the rest of the financial system. As I said in an earlier post, you may like the friendlier service and lower fees of a credit union, but they’re no escape from the financial reality of the USA.