U.S. seizes top credit union clearing house

WASHINGTON (Reuters) - U.S. regulators seized control on Friday of U.S. Central Federal Credit Union, a huge wholesale credit union with about $34 billion in assets that provides services to nearly every other credit union.

The National Credit Union Administration (NCUA) also took control of Western Corporate (WesCorp) Federal Credit Union with $23 billion in assets.

Both institutions had an "unacceptably high concentration of risk" the regulator said.

The action shone the spotlight on another segment of the creaking U.S. banking system and came as regulators seized another three small banks, bringing the total to 20 so far this year.

In January the NCUA injected $1 billion into U.S. Central after the corporate credit union suffered dramatic declines in the value of mortgage-backed securities it had bought.

Corporate credit unions are the retail credit union's credit union, providing services including lending, and check and payment clearance services.

The NCUA also moved in January to guarantee the $80 billion that regular credit unions have on deposit in the corporate network. The moves were considered a bailout of the U.S. credit union network.

The NCUA said service will continue uninterrupted at U.S. Central and WesCorp, and said member accounts are guaranteed through December 31, 2010.

"When a credit union or a corporate credit union is taken into conservatorship... it remains business as usual, all insured deposits are protected," said Henry Kertman, spokesman for the California Credit Union League.

NCUA said it seized the credit unions after completing a detailed analysis and stress test of the mortgage and asset backed securities held by all corporate credit unions.

U.S. Central based in Lenexa, Kansas has 26 corporate credit union members and says it provides settlement services to 100 percent of corporate credit unions and 93 percent of all U.S. credit unions.

WesCorp based in San Dimas, California, has approximately 1,100 retail credit union members, the NCUA said.

Regarding the three small banks, the U.S. Federal Deposit Insurance Corp found other banks to acquire the deposits of TeamBank of Paola, Kansas and Colorado National Bank of Colorado Springs, Colorado. But the FDIC became receiver of FirstCity Bank of Stockbridge, Georgia, and approved the payout of its insured deposits.

(Reporting by Karey Wutkowski, Helen Chernikoff and Elinor Comlay; Editing by Tim Dobbyn)