WASHINGTON — Government rescues prevented the failure of about 1,000 consumer credit unions, which could have been pulled under due to the failure of larger institutions that hold their investments, a regulator said Thursday.

In late September, the federal government moved to stabilize a crucial part of the credit-union sector, which was battered by losses on mortgage investments. The government is issuing up to $35 billion in government-guaranteed bonds to help fund the rescue.

"Inaction would have resulted in massive disruption to consumer services," Deborah Matz, chairman of the National Credit Union Administration said in written testimony submitted to a Senate Banking Committee hearing. "Total costs to any remaining insured credit unions would have been far greater than the resolution strategy" used by the government, she said.

The government's action came after bad bets on mortgage-backed securities toppled three wholesale credit unions, also known as corporate credit unions. Those institutions invest money for the nation's 7,400 retail credit unions and provide services such as check clearing.

Credit unions, despite their reputation as more conservative than banks, weren't immune to the larger problems cascading through the financial system from the subprime mortgage crisis and the wider housing meltdown.

The biggest problems were at wholesale credit unions, some of which had a large concentration of their investment portfolios in subprime or other risky mortgage-backed securities.

Had the government not acted, the credit union system would have been hit with $30 billion in losses, Matz said. The problems at wholesale credit unions, she said, would have "cascaded to consumer credit unions," which have uninsured shares in the corporate institutions.

Five of the nation's 27 wholesale credit unions have failed since March 2009. Matz estimated that those failures will cost between $7 billion and $9 billion over the next decade. She emphasized that credit unions will be paying the cost of that rescue through higher fees.

"We resolved the problem at the lowest long-term cost consistent with sound public policy," Matz told lawmakers.

Sen. Kay Bailey Hutchison, R-Texas, said she was pleased that taxpayers aren't bearing the cost of the rescue, but she cautioned that "we don't want to hurt their capability to be solvent and successful."

The three largest federal credit unions are: Merrifield, Va.,-based Navy Federal Credit Union, Raleigh, N.C.-based State Employees' Credit Union and Alexandria, Va.-based Pentagon Federal Credit Union.

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