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

The transaction had already won NCUA approval.

Management of the Michigan CU previously hailed the merger as anindustry breakthrough in opening the doors for troubled thrifts orperhaps even community banks to legally become absorbed by healthyCUs.

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

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

Michael Bell, a Niles, Mich., attorney representing the KotzSangster firm of Detroit, credited Gary Easterling, president/CEO of UFCU “with coming up with theidea and after looking at the concept, understanding it had neverbeen done before, we asked ourselves a rhetorical question, whynot?”

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

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

Action by the FDIC is expected to clear the way for a speedytransition in the early months of 2012. Officials of UFCUwere not immediately available for comment on the exacttimetable.