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UPDATE: Linda Jekel, director of Washington's Department of Financial Institutions credit union division assures the Daily Weekly that "no other credit unions are in danger

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Feds Shut Down The Union Credit Union in Spokane, May Be First of Many to Go Under

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UPDATE: Linda Jekel, director of Washington's Department of Financial Institutions credit union division assures the Daily Weekly that "no other credit unions are in danger of failure in Washington state."

A phone call to The Union Credit Union in Spokane won't get you to a credit union agent or anyone else associated with the institution. Instead, after a long wait, a person with "Credit Union Services" at a call center in Grand Rapids, Mich. will pick up and ask "how may I help you?" That's because The Union Credit Union no longer exists. It was shut down on Friday by federal regulators after teetering on the edge of collapse for months. And with 20 other Washington credit unions barely staying afloat, The Union may be the first of many such financial institutions to see its demise in the Evergreen State.

Folks who have money at The Union shouldn't panic. Holdings up to $250,000 are federally insured, and the accounts are being shifted to Alaska USA Federal Credit Union of Anchorage. Membership operations will be handled by the National Credit Union Administration.

The failure of the credit union is the first of its kind in Washington and the 17th in the nation.

Linda Jekel, director of Washington's Department of Financial Institutions credit union division tells the Puget Sound Business Journal that the reasons for the institution's failure stems from unemployed members making delinquent payments.

"The Union struggled primarily due to the unemployment of its members," said Linda Jekel, director of DFI's division of credit unions. "This resulted in a high number of delinquencies, loan charge-offs, negative earnings and low net worth."

UPDATE: Jekel also says that the reason The Union's members were so greatly impacted by unemployment is because the majority are in the construction trade and have seen their businesses sharply decline in the last two years.

The benchmark set by the DFI for what constitutes a healthy credit union is a ratio of net worth to assets of at least 7 percent. Last year The Union reported a net worth ratio of negative 0.35 percent. It had also posted losses of $474,000 through the first nine months of this year.

UPDATE: Jekel says the Journal was wrong in labeling any credit union with a net worth ratio under 7 percent as in danger of failure. She says her agency rates credit unions as "adequately capitalized" down to a 4 percent net worth ratio.

Of the 20 other credit unions in trouble in the state, the Journal points to three that are particularly bad: All City Credit Union in Everett, Sno Falls Credit Union in Snoqualmie and Cascade Forest Products Credit Union in Vancouver.

The solution to the mess will likely mean mergers. A merger can be mutually beneficial to ailing credit unions, as it can diversify their holdings. If, however, both institutions have shit nasty assets that are littered with delinquent loans and repos like The Union's were, merging can just create a larger failing entity instead of two smaller ones.

Meanwhile, major banks like Morgan Chase, Bank of America and Wells Fargo have continually posted profits ever since receiving the lion's share of bailout funds under the Troubled Asset Relief Program of 2008.

 
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