WASHINGTON — Billions of dollars of losses accruing among corporate credit unions, a network of bankers' banks that aggregate the savings of tens of millions of credit union members, are being passed down the three-tiered credit union system to the bottom — the nation's 7,800 regular credit unions.

"The losses in the individual corporates are trickling down to individual credit unions," said Tun Wai, chief economist for the National Association of Federal Credit Unions, one of two main industry lobby groups.

As many as half of all credit unions are expected to report red ink for 2009, and a huge chunk of those losses stem from investments in corporate credit unions.

The corporate credit unions, created in the 1970s to give smaller institutions access to the payments system, have been consolidating, and currently number 28. The corporates created their own corporate credit union, known as U.S. Central Federal Credit Union in Lenexa, Kan.

The whole system began to unravel last year, when heavy investments in mortgage-backed securities forced the National Credit Union Administration to take over both U.S. Central and the largest individual corporate, WesCorp Federal Credit Union in San Dimas. Calif.

Other corporates are also taking — and passing on — losses. Last Friday, Southwest Corporate Federal Credit Union in Dallas reported that its 2009 loss will wipe out $135 million of equity for its 1,200 credit union members.

Many credit unions are writing down capital in multiple corporates. North Carolina State Employees' Credit Union, the nation's second-largest credit union, wrote down investments in 11 different corporates. "Imagine having to tell your members you're invested in one of these corporates; now imagine telling them you're invested in 11," said Jim Blaine, the president of the $19.6 billion institution. Another otherwise successful year for the credit union giant was saved partly because of a windfall from a trade in Treasury securities at yearend 2008, which helped it book a $176 million net for 2009.

Credit unions also are facing higher premiums from the National Credit Union Share Insurance Fund.

Last year the NCUA assessed a premium of $1.1 billion as costs for corporate troubles and failures among regular credit unions continued to grow. The federal regulator has told credit unions to expect similar assessments this year and next.

The NCUA, which has been operating U.S. Central and WesCorp since the March 20 takeover, now has an inventory of as much as $40 billion of mortgage securities.

In a recent interview, Larry Fazio, deputy executive director for the NCUA, said it has no choice but to let the bonds mature and take whatever losses accrue over time. To sell the toxic assets in today's illiquid market would require them to realize billions of dollars more in losses, he said.

In April the NCUA scraped its minimum capital requirements for corporates; the NCUA has proposed others reforms, but officials declined a request to comment until they are finalized.

Even once the new rules are in place, the future of the corporate network is murky. Many credit union executives insist they will not contribute to any efforts to recapitalize the system. "Once burned, twice cautious," is how Charles Felker, a one-time corporate examiner at the NCUA and now vice president of the credit union bond house First Empire Securities, put it.

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