The U.S. Government seized the country’s two largest wholesale credit unions on Friday after their balance sheets did not pass government muster. From the Wall Street Journal:

In the latest move by federal authorities to prop up the nation’s banking system, regulators late Friday seized control of the two largest wholesale credit unions in the U.S. after finding that their losses on mortgage-related securities were larger than previously thought.

U.S. Central Corporate Federal Credit Union in Lenexa, Kan., and Western Corporate Federal Credit Union in San Dimas, Calif., which have a total $57 billion in assets, were taken into conservatorship by federal regulators.

Michael E. Fryzel, chairman of the National Credit Union Administration, the industry’s federal regulator, said the seizure was necessary to maintain the integrity of the credit-union system and protect the insurance fund that backs up deposits in thousands of retail credit unions.

No problems with nationalization of these institutions on the credit union side. Is there a reason that the government feels that such action would not be fruitful on the banking side?
The two wholesale credit unions did not appear to have credibility with regulators.

Mr. Fryzel said regulators acted Friday after becoming convinced that the two institutions were underestimating the true scope of their losses. “With us in control we’d get honest numbers,” he said. Mr. Fryzel said regulators plan to replace top management at both institutions.

In total, the 28 wholesale credit unions in the U.S. were showing paper losses of about $18 billion as of Dec. 31. Mr. Fryzel said regulators aren’t concerned about the health of any other wholesale credit union besides the two brought into conservatorship.

Searching for “honest numbers”. What a novel idea. As more losses become apparent in this sector the regulators have apparently abandoned their initial prescription, which was to level an assessment against every credit union to cover wholesale losses. They will now petition to borrow from the Treasury, after the political outcry from retail credit unions forced them to back down.

NCUA had said it would make up the expected losses in the insurance fund by dunning the nation’s thousands of retail credit unions. But after an outcry from the industry, Mr. Fryzel said the agency’s board now plans to ask Congress in the coming week for authority to borrow money from the Treasury. He said the industry isn’t looking for a bailout, and would repay all such borrowings.

Not much notice given to these problems in the non-financial media. With Treasury due to release a bank bailout plan this week the focus will return to these “assets” that are drowning our financial system.