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Eastern Financial Credit Union Placed into NCUA Conservatorship


Update 6/26/09: The NCUA is merging Eastern Financial Florida Credit Union into Space Coast Credit Union (see NCUA press release).

It was announced Friday that Eastern Financial Credit Union in South Florida has been placed into conservatorship under the National Credit Union Administration (NCUA).

With assets of $1.6 billion, this is the largest credit union that I've seen to be placed into conservatorship (excluding the corporate credit unions). I reviewed some large credit unions that went into conservatorship and were liquidated in 2008 in this post, and the largest one was Cal State 9 with $339 million in assets.

It should be noted that NCUA conservatorship doesn't seem to have much immediate effect to credit union members. Here's how the conservatorship is described in the official announcement:
A conservatorship means that NCUA has assumed control of the credit union in order to ensure its financial stability and safe and sound operation. NCUA ensures that issues related to the credit union's financial condition are addressed and that service to members continues uninterrupted. The same dependable and familiar credit union staff you know and trust continues to work at your credit union.

And according to this NCUA press release, "Service continues uninterrupted at Eastern Financial Florida Credit Union and members are free to make deposits, access funds, make loan payments and use share drafts."

One thing that is not answered directly in any of the official documentation that I've found is the effect on uninsured deposits at the credit union. Unlike when the FDIC became the conservator of IndyMac, the NCUA conservatorship doesn't seem to threaten uninsured deposits. I just called Eastern Financial Credit Union, and it appears that members will have full access of all of their deposits, even those over the insured limits. I don't know why the NCUA does not explicitly state this in their press releases.

Even though members with over the insured limits should be okay, they should transfer out money or restructure their accounts so all of their deposits are insured. Based on recent history, it's common for credit unions that are placed into conservatorship to be liquidated within a year. The liquidation usually involves a stronger credit union absorbing the failed credit union. Uninsured deposits will definitely be at risk at the time of liquidation.

According to Florida regulators, "Loan losses related to the real estate and the securities markets depleted the credit union’s net worth." This Miami Herald article has a good overview of the credit union's financial problems and the mistakes that it made.

This NCUA conservatorship came on the same day that four banks were seized by the FDIC (see post). One reminder is that the basic $250K coverage limit for both FDIC and NCUA is only temporary and is scheduled to go back to $100K at the end of 2009. However, as I reported yesterday, the $250K limit may soon be made permanent.

Thanks to the reader who mentioned this conservatorship in the comments.


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rjm   |     |   Comment #1
I have a rewards checking with this credit union. I called yesterday to see if there were any planned changes to the rewards checking and the girl said no.

Granted, she probably wouldnt know if there were changes planned.
Student Credit Cards
Student Credit Cards   |     |   Comment #2
Sounds like familiar. I also tried that but nothing happened.

Anyway, thank you for sharing this post. I also ran through your posts, and I was amazed by some of the topics.