The government shut down two of the largest corporate credit unions — U.S. Central and WesCorp. The news is just being reported so no real details.

Here is a link to a post that I wrote on this at the end of January. That’s when to everyones “surprise” it was discovered there might be some problems lurking in this sector. Of course, it wasn’t anything that couldn’t be taken care of with a little TARP-like money. Guess again. The post has some other links as well.

Also, here is a comment that was left on the post after it was reprinted on Seeking Alpha.

The FDIC is not involved with credit unions.

To answer earlier questions, the big corporate credit unions sell participations in the MBS they own to the small retail credit unions.? Further, the large corporate credit unions issue/sell CD’s to fund their balanc sheet (and thus their MBS portfolio) and guess who buys these CD’s, which far exceed the “guaranty limits? Yep, the small retail credit unions..

Check back later for the plain vanilla bank failures. There’s already one in Georgia (does that state have crummy banks or what!) but I’ll wait to post until the returns are in from the West.

Update: The WSJ has some details now. Here’s the link and a summary below of what they have to say.

In the latest move by federal authorities to prop up the nation’s banking system, regulators late Friday seized control of the two largest wholesale credit unions in the U.S. after finding that their losses on mortgage-related securities were larger than previously thought.

U.S. Central Corporate Federal Credit Union in Lenexa, Kan., and Western Corporate Federal Credit Union in San Dimas, Calif., which have a total $57 billion in assets, were taken into conservatorship by federal regulators.

Michael E. Fryzel, chairman of the National Credit Union Administration, the industry’s federal regulator, said the seizure was necessary to maintain the integrity of the credit-union system and protect the insurance fund that backs up deposits in thousands of retail credit unions.

The affected institutions don’t serve the general public. They provide critical financing, check clearing and other tasks for the retail institutions. These wholesale credit unions, known in industry parlance as corporate credit unions, are owned by their retail credit-union members.

The vast majority of regular credit unions, the bank-like cooperatives familiar to millions of account holders nationwide, are considered financially sound. Credit unions have more than 90 million members nationwide.

U.S. Central and Western Corporate have been grappling for more than a year with large paper losses on a slew of assets, mostly mortgage related. In January, regulators moved to prop up U.S. Central with a $1 billion infusion after it took big write-downs on some of the securities.

Mr. Fryzel said regulators acted Friday after becoming convinced that the two institutions were underestimating the true scope of their losses. “With us in control we’d get honest numbers,” he said. Mr. Fryzel said regulators plan to replace top management at both institutions.

Update: Saturday, March 21 The WSJ Real Time Economics blog has some further news on the failure of these two corporate credit unions. According to a fellow by the name of Mark Moebs, a consultant, the industry has bigger problems that haven’t been disclosed. I don’t know anything about Moebs so take his statement with that in mind. Here is what he had to say.

But according to Mr. Moebs, there’s plenty to be concerned about. His own tests show credit unions and wholesalers could face combined losses of nearly $75 billion as their portfolios of loans made for mortgages, vehicles, and other assets continue to sour.

“They will have to go to Congress or the Fed for money because they don’t have enough themselves and their insurance fund isn’t big enough to solve their problems,” he said. “If they could get it from the Fed, which probably wouldn’t impose any conditions, that would be the better way of going. If they get it from Congress, Congress will likely impose conditions,” such as requiring credit unions to cut costs to match banks’ efficiency (mostly by shedding personnel), or taxing them.