31 Aug As Banks Flail, Credit Unions Fail
It’s no great secret that the banking industry is floundering and that credit has tightened considerably. But to date, no one has considered the effect of all of this on the nation’s credit unions. Credit Unions are beginning to follow banks and mortgage companies into failure.
While the National Credit Union Administration does publish statistics of failures, the most recent data ends in 2005 and does not show current trends. Even though Credit Unions are generally smaller than banks, they are allowed to finance mortgages. If even a single mortgage loan falls into default, a small credit union’s financial health can be compromised. Because credit unions often are run by non-banking professionals, lending criteria aren’t always followed resulting in riskier loans.
In the past two months, two Federally insured Credit Unions have failed in the State of Connecticut. One of them, the New London Security Federal Credit Union, was formed in the depths of the depression in 1936 and had over $12.7 million in assets. The other, Meriden F.A. Federal Credit Union, was much smaller with assets of only $337,968,00.
Credit Unions offer similar deposit insurance to banks, covering $100,000 in deposits and up to $250,000 for retirement accounts. In the case of the new London credit union, however, $800,000 of the deposits were not covered by insurance.
The New London Security Federal Credit Union had only 2% of its $12.7 million assets invested in loans. Ed Rachleff, New London Security FCU’s investment advisor committed suicide only hours after the credit union was closed by leaping from an open window on the 11th story of the Mohican Senior Apartments and now authorities are looking for reasons for that credit union’s failure.