Wednesday, March 23, 2011

Aftermaths from the 2008 Credit Crisis Continue

Aftermaths from the 2008 Credit Crisis still continue to surface within the U.S financial system. Liz Rappaport, from the Wall Street Journal reports in her article, “Banks Hit for Credit Union Ills” on five wholesale credit unions backed by the National Credit Union Administration (NCUA) who have threatened to sue Wall Street investment banks for misrepresenting bonds packaged with subprime mortgage loans, bought and held within credit union portfolios.

Credit Unions, usually created by employee working groups, were established by the government in 1934. Federal Credit Unions are overseen by the NCUA and managed by a credit committee or Board of Directors. These unions encourage regular savings by members and can provide consumer and home mortgage loans from the members’ pooled savings deposits. Funds deposited with the federal credit unions are insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF). These funds are also backed by the U.S. Government.

The 2008 credit crisis had such a dramatic effect on credit unions because of their reliance on corporate bank liquidity. Mortgage loans bought and held by credit unions significantly lost value causing a liquidity crisis for credit unions.


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