Credit unions looking to expand their lending base have shown a tendency to accept greater risks in their lending and investment practices. the American Institute of Certified Public Accountants warns, including a leaning toward derivatives.

Like many other financial institutions, credit unions have gotten increasingly involved with derivatives, mostly mortgage-backed derivatives--complex nontraditional financial instruments that may involve a substantial risk of loss. For example, some credit unions have been experiencing large losses on interest-only and principal-only mortgage-backed derivative strips because of record mortgage refinancings of the past 18 months.

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