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I chair my credit union board. We learned about this a week ago. The credit union industry is not protected directly from the federal govt like banks with the FDIC. We are a member owned organization that support each other. The main bank IS our FDIC. The next layer of membership is at the state level in which there are something like 28 of these (not each state has one). Credit Unions are members of this second tier. We borrow from this second tier, this second tier borrows from this large unit. They are hurting from this economy since any funds are invested. Fortunately credit unions investments are more controlled than most banks.
The article is correct, smaller and under capitalized credit unions may collapse. Fortunately my credit union is solid due to our management principals. however, we anticipate a negative income rate this year. Basically, our assessment equals what our projected income was to be.

We set our budget in December and we tie in management and employee incentives to ratios that will be affected by this decision. Our employees stand to lose due to this decision but our members and their money will be fine.
I will be presenting this issue next month at our annual meeting. For us we are at least able to get out in front to our members.

Support your credit union as they are generally managed more conservatively than banks. Most people have access to a credit union.

The main bank IS our FDIC. The next layer of membership is at the state level in which there are something like 28 of these (not each state has one). Credit Unions are members of this second tier. We borrow from this second tier, this second tier borrows from this large unit. They are hurting from this economy since any funds are invested. Fortunately credit unions investments are more controlled than most banks.

When you say "main bank" and "large unit" are you referring to the Central Federal that just went bust? I may be really old-fashioned, but I always thought that CU's paid interest to depositors from interest received on loans. I thought, in the case of smaller ones I was in years ago, that they were economically self-sufficient. Then about 6 years ago my small credit union in Virginia was "bought" by a large credit union.

The board decided and browbeat the members to turn over their assets and members to the borg. I voted "Hell no". The Borg turned out to be more of a scam than a credit union. Loan rates went up a bit, but savings and CD rates went way down after the takeover. In fact I usually had a lot of cash sitting around in the old credit union and there were several times when they called me and asked if they could put some in a CD at a favorable rate in order to get their long term ratio up.

In contrast, the new credit union sent me literature on how I should send my money to their "partner" brokerage. They would make it really easy and have lots of intricate ties between the not-for-profit credit union and the very much for-profit brokerage. The loans rates then went down in 2002-4 with the credit bubble, which is the advantage of being part of the larger financial system (our members mortgages were sold as ABS). But when the larger financial system crumbles (it is arguably dead already), you die with it.

The main bank IS our FDIC.

Are you saying that the main US credit union insures all depositors' FCU accounts? That does not sound right. My deposits are insured by the NCUSIF. According to my credit union, "All deposits are federally insured by the full faith and credit of the US Government to at least $250,000 through the NCUSIF - the National Credit Union Share Insurance Fund."

Maybe different credit unions have different ways to insure doposits.

Support your credit union as they are generally managed more conservatively than banks. I thank you for your reassuring post. I am a long-time member of a credit union and they have been very good to me. I have worried what to do since this whole economic scandal broke last Oct. but felt confident with them because they are so conservative. Now, with the new sham stimulus (as I call it "shamulus" bill)I worry more. I will leave my money there for a while, but monitor things very carefully and get my mattress ready!

Someone needs to see where Obama puts his money and how much he is making on his investments, etc. Not that I wish any bank or S & L to fail, but I hope he looses everything he has ever saved and is forced to take in tenants/rent out rooms in his million dollar house just to pay the mortgage like I have seen many others have to do already! After all, Obama needs to practice what he preaches - socialism does not allow big houses for one family. His place needs to be made into apartments for the poor so he can "spread the wealth."

Why should the NCUA bail out bad investments, rather than only the depositors of credit unions that go under? Also, what was this “national credit union” doing making investments that not even the member credit unions could or would make? I can understand banks making bad investments, as they were allowed sometime in the early 90’s to have investment brokerages and such, but an entity of the credit union system?