As of Feb. 1, it had cost the Temporary Corporate Credit Union Stabilization Fund $400 million.

The report concluded that the Warrenton, Ill.-based credit union's management didn't establish proper concentration limits, relied too heavily on rating agencies, didn't properly monitor credit risk exposure and relied on the corporate credit union structure to provide financial strength and liquidity.

In 2009 and 2010 the NCUA conserved five corporate credit unions because of extensive losses from their investments in mortgage-backed securities: Constitution Corporate FCU, Members United Southwest Corporate FCU, U.S. Central Corporate FCU, Western Corporate FCU and Members United.

Members United had as much as $6.5 billion invested in U.S. Central, and this represented indirect exposure to the mortgage-backed securities that U.S Central invested in.

"Members United, when determining concentration limits in mortgage-backed securities, did not consider this indirect exposure," the report concluded.

The reported noted that Members United's CEO Joseph Herbst was on U.S. Central's board and should have known of the concentration in mortgage-backed securities. Members United lost $308.2 million from its investments in U.S. Central as of Feb. 28.

Members United's management failed to understand the credit risks associated with investments in complex instruments and didn't establish "prudent sector concentration limits," according to the report.

The report also concluded that "stronger and timelier supervisory action regarding Members United's concentration in mortgage-backed securities could have resulted in a reduced loss to the TCCUSF."

The report noted that NCUA examiners didn't identify and require corrective action until May 2008, by which time there had already been severe losses. There had been no supervisory concerns raised in 2007 even though there had already been severe losses.

However, the report noted that some of the NCUA's shortcomings in this area were the result of the agency not having "appropriate regulatory support, such as specific investment concentration limits" that might have addressed the concentration risk issues.

In response, NCUA Executive Director David Marquis wrote that the recent set of changes to the corporate credit union regulations approved by the NCUA board are aimed at preventing a recurrence of many of the problems at Members United and the other corporate credit unions. He added that the agency is exploring whether to develop additional risk-monitoring procedures to help examiners identify changes in a corporate credit union's risk exposures.

In addition, he noted that the corporate credit union rule approved by the NCUA board requires a majority of corporate credit union board members to come from natural person credit unions in order to avoid potential conflicts stemming from having too many corporate credit union executives on the board of top-tier corporates such as U.S. Central.

Last September the NCUA agency approved a series of rules that take effect this year on the corporates. And last month, the board approved another set of regulations that include mandatory risk-management committees at all corporate credit unions, recorded votes on all board actions and mandatory disclosure of any compensation received from a corporate CUSO.