WASHINGTON – U.S. Central FCU, WesCorp FCU and other troubled corporate credit unions accessed the Federal Reserve’s special Term Auction Facility for huge amounts of emergency loans as they sought liquidity in the face of mounting losses on their mortgage backed securities, according to new data released by the Fed.
U.S. Central, for example, began tapping into the newly created Fed program on Aug. 1, 2007, just as the lending markets began seizing up. The troubled corporate a year later borrowed as much as $7 billion on a 28-day loan in August 2008, the records show.
Soon after, the struggling corporate began borrowing from the Fed’s discount window as well, as losses grew on its MBS portfolio that would eventually require its takeover by NCUA in March 2009.
The Fed’s records show U.S. Central borrowing through the Term Auction Facility for 177 days from Aug. 2007 to April 2010, 13 months after the NCUA takeover.
The increased lending came as mounting losses on investments were making it increasingly expensive for the one-time $52-billion Lenexa, Kan., corporate to borrow in the public markets by selling short-term commercial paper, or from the Federal Home Loan Bank of Topeka, where it had almost exhausted a $7 billion line of credit. NCUA also was working to devise a scheme to allow U.S. Central and WesCorp to access its own emergency loan fund, the Central Liquidity Facility, which eventually provided $10 billion to the two doomed corporates.
Other troubled corporates supplemented their discount window loans as the markets were seizing up. WesCorp tapped the Term Auction Facility for as much as $2.8 billion in December 2008 and borrowed an average of $100 million between August 2007 and April 2010. Members United Corporate FCU borrowed as much as $268 million in October 2008. WesCorp and Members United were among the five failed corporate that eventually were liquidated by NCUA. The other two were Southwest Corporate FCU and Constitution Corporate FCU.
The Fed created the Term Auction Facility as a supplement to its discount window program as the nation’s financial markets were beginning to feel the strain of the mortgage meltdown in mid-2007. Under the program, loans were auctioned against a wide variety of collateral.
The six biggest U.S. banks borrowed as much as $460 billion from the Fed under the program.
Other credit unions tapping into the lending program were: Wisconsin’s Central Corporate CU, Alaska USA FCU, North Carolina’s State Employees’ CU, Marine CU and New Hampshire’s Service CU.
Numerous other credit unions also accessed the Fed’s loan programs, mostly the discount window, including: Northwest Community CU, Spokane Teachers CU, Scott CU, Pioneer CU, First Financial FCU, Police and Fire FCU, OnPoint Community CU, New England FCU, America First CU, Visions FCU, and Eastern Financial Florida CU, a Florida giant that eventually failed in spring 2009.
