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Credit unions: US credit unions stave off failure

$50 billion resolution comes to an end; Model for US banking system and European banks

Last month the final sale of notes by the National Credit Union Administration (NCUA) took place, marking the end of its programme to resolve $50 billion of corporate credit union legacy assets, and forestall a failure of the US credit union system.

Credit unions serve 90 million customers in the US and account for about 10% of FDIC-insured deposits. They are seen as essential, alongside community banks, to serving small and medium-sized enterprises as the national banks grow ever larger, cut regional headquarters to save costs and turn their backs on smaller customers.

Less than a week after the close of the sale, the NCUA announced that it was suing JPMorgan and RBS for $800 million, accusing the banks of selling loans that did not meet underwriting guidelines. The NCUA is expected to file suits for billions of dollars against a further five to 10 banks.

Wholesale problems

The problems facing the unions started with the wholesale credit unions. Credit unions tend to be very small, with median deposits of about $15 million. With limited resources, the small credit unions would put their surplus of investable funds with a wholesale credit union, also known as a corporate credit union.