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By MARK MAREMONT And VICTORIA MCGRANE
Two years after the peak of the financial crisis, the federal government swooped in to stabilize a crucial part of the credit-union sector battered by losses on subprime mortgages.
Regulators announced Friday a rescue and revamping of the nation's wholesale credit union system, underpinned by a federal guarantee valued at $30 billion or more. Wholesale credit unions don't deal with the general public but provide essential back-office services to thousands of other credit unions across the U.S. The majority of retail credit unions are sound, but they will have to shoulder the losses through special assessments over the next decade.
Friday's moves include the seizure of three wholesale credit unions, plus an unusual plan by government officials to manage $50 billion of troubled assets inherited from failed institutions. To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets.
Officials said the plan won't cost taxpayers any money. Still, it marks the latest intervention by the U.S. government into a financial system weakened by the real-estate bust. Bad bets on mortgage-backed securities have now killed five of the nation's 27 wholesale credit unions since March 2009. The federal government, which now controls about 70% of the total assets at such credit unions, said the surviving institutions will be reined in so that they take fewer risks with their investments.
Credit Unions Bailed Out
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