It's not just giant banks on the brink these days: Losses are clobbering nonprofit credit unions that have strayed from their conservative heritage or whose members have been pulled into economic downdrafts.
With rising unemployment compounding the effect of tumbling home prices, more than a third of California's 485 federally insured credit unions lost money in the first half of this year, and three were seized by regulators.
The number of money-losing credit unions nationwide as well as in the state has surged about 75% from last year, according to the National Credit Union Administration, a federal regulator.
And with some so-called corporate credit unions -- institutions that act as backup sources of funding for the credit unions used by consumers -- having problems with mortgage-backed bonds they own, Congress passed and President Bush this month signed legislation raising the amount that a quasi-governmental entity can lend to credit unions to $41 billion from $1.5 billion.
The biggest California credit union to fail this year was Cal State 9 Credit Union of Concord, founded in 1948 by University of California employees. Its collapse contributed to a $225-million loss in July -- the biggest monthly deficit ever -- for the government-managed fund that insures deposits at most credit unions.
"The credit unions overall went into this downturn in better shape than the banks, but that doesn't mean you can't have some that get in deep trouble," said Robert B. Hoban Jr., an analyst at credit-rating firm Standard & Poor's.
Consumer credit unions generally didn't make dicey mortgages during the housing boom. Nonetheless, some are paying a price after venturing well beyond their traditional offerings -- plain-vanilla home and auto loans and credit cards -- to offer a broader array of financial services, including commercial loans.
The depositor-owned institutions, like community banks, have been pressured in recent decades as national lenders turned their core business lines -- credit cards, first mortgages and auto loans -- into mass-market commodities, reducing profits. That tempted credit unions to move into riskier areas, such as home equity lines of credit and auto loans made through used-car dealers, said Jim Wilcox, a banking professor at UC Berkeley's Haas School of Business.
"If I can't get enough yield on the same car loans I've always made, I'm going to have to reach for more," Wilcox said. "But almost always, more yield comes with higher risk."
Even if they don't have direct exposure to the housing market, California's credit unions are feeling the economic woes affecting their nearly 10 million members.
"The member may have a credit card and an auto loan from the credit union, then went and got in trouble with an exotic loan from someone else," said Daniel Penrod, an analyst for the California and Nevada Credit Union Leagues, a trade group.
"The credit union might not have been part of the disease, but it's dealing with the symptoms," he said.
Pasadena's Wescom Credit Union, the seventh-largest in California, recently closed 11 of its 55 branches to cut costs. The action followed losses totaling $34.9 million in 2007 and $10.9 million in 2008's first half as delinquencies surged on home equity loans, credit cards and auto loans.
Wescom Chief Operating Officer Jane Wood said the home equity loans "weren't risky when we made them. They only became risky when housing prices fell more than anyone was predicting," wiping out the equity behind the loans.
Dealing with similar problems, Kinecta Federal Credit Union of Manhattan Beach, founded in 1940 to serve Hughes Aircraft employees, lost $10.6 million in the first six months of the year.
Wescom and Kinecta officials say that their institutions remain solid and that adding aggressively to provisions for losses -- a prudent policy for the long run -- contributed to the recent negative earnings.
Many other credit unions adopted similar strategies last year as housing woes hurt the economy, Penrod said.
Overall, he said, credit unions are maintaining solid capital or net worth, an indicator of their ability to withstand losses. But loan delinquencies have more than doubled over the last two years, as has the percentage of loans recorded as uncollectable.
Liquidating Cal State 9 and another failed Northern California credit union, Sterlent, cost the National Credit Union Share Insurance Fund more than $200 million in July.
That triggered the record $225-million loss for the fund, the credit union equivalent of the Federal Deposit Insurance Corp. for banks and thrifts, which insures 7,972 state-chartered and federal credit unions.
At the end of August, the insurance fund had $7.43 billion, or 1.24% of all insured deposits, which is considered a healthy level, said National Credit Union Administration spokesman John McKechnie.