In a landmark ruling, the FDIC Tuesday gave approval to a credit union-bank deal by which the $1.3 billion United Federal Credit Union of St. Joseph, Mich. can buy the ailing Griffith Savings Bank of Indiana, according to attorneys representing UFCU.

The transaction had already won NCUA approval.

Management of the Michigan CU previously hailed the merger as an industry breakthrough in opening the doors for troubled thrifts or perhaps even community banks to legally become absorbed by healthy CUs.  

The key to the transaction is that CUs can purchase the assets of the ailing thrift rather than take on the charter, which would be prohibited, explained CU lawyers. Griffith has agreed to shed a portion of its assets to conform with NCUA field of membership regulations as they apply to UFCU, officials said.      

The $80 million northern Indiana bank, located not far from UFCU's Michigan headquarters, once considered converting to a credit union but the idea was later dropped.

Michael Bell, a Niles, Mich., attorney representing the Kotz Sangster firm of Detroit, credited Gary Easterling, president/CEO of UFCU “with coming up with the idea and after looking at the concept, understanding it had never been done before, we asked ourselves a rhetorical question, why not?”

In addition to safety and soundness issues, the parties also saw “two great hurdles or barriers to such transactions—FOM and the second being impermissible assets or investments,” Bell explained.

The plan is to make the bank's current customers members of the credit union, adding that “impermissible assets or investments are a bit easier to deal with as you can take advantage of a short time window allowed by the NCUA regulations to divest of them after the transaction.”

Action by the FDIC is expected to clear the way for a speedy transition in the early months of 2012.  Officials of UFCU were not immediately available for comment on the exact timetable.