Regulators hit by lawmakers over shutdown of Chicago bank with community ties, closing policy
By Marcy Gordon, APThursday, January 21, 2010
Lawmakers angry over bank closure
WASHINGTON — Federal regulators received a verbal lashing Thursday from House lawmakers over the shutdown of a Chicago bank strongly tied to the local community and the government’s handling of bank closings.
Picking over the carcass of Park National Bank — a relatively healthy institution closed by regulators last October — were a House Financial Services subcommittee, bank executives and federal agency officials. Park National and tiny Citizens National Bank, based in Teague, Texas, were in comparatively good financial shape but were shuttered along with seven severely troubled banks under the same corporate umbrella, a bank holding company called FBOP Corp. The other banks were mostly in the West; the nine had combined assets of $19.4 billion.
While big Wall Street banks got multibillion-dollar bailouts, community banks that played no role in stoking the financial crisis were subjected to stricter rules on lending and holding capital from overreaching regulators, lawmakers said at a hearing. And they insisted that the Federal Deposit Insurance Corp. and other agencies are shutting down banks that have healthy loans rather than working out the institutions’ problems.
Park National “isn’t an isolated incident,” said Rep. Tom Price, a Republican from Georgia — where 25 banks failed last year, more than in any other state. “You all are affecting real lives and real people in an adverse way,” Price told a panel of regulators from the FDIC, the U.S. Office of the Comptroller of the Currency, which regulates national banks, and the Treasury Department. A total 140 banks collapsed in 2009, the highest annual tally since the savings-and-loan crisis of the 1980s and early 1990s.
It was a switch from recent criticism of the FDIC by financial analysts and other critics that the agency has closed too few troubled banks — or at least has done so too slowly.
Rep. Bobby Rush, D-Ill., told the regulators: “We don’t want to leave a gaping hole in our communities.”
A throng of Chicagoans, who had traveled by bus to Washington, crowded the hearing room to show support for the billionaire chief executive of Oak Park, Ill.-based FBOP, Michael Kelly, who attained local-hero status with the projects benefiting low-income people that he funded through Park National.
Jennifer Kelly, a senior deputy comptroller at the OCC, maintained that, “We have to have banks operate in safe and sound conditions so they can serve their communities. … We do not close banks that are well capitalized.”
Mitchell Glassman, director of the FDIC’s division that deals with failed banks, said the agency had put Park National and Citizens National out for bid in September to gauge interest from potential buyers. There wasn’t enough interest in buying them as stand-alone institutions as opposed to being linked to the other seven FBOP banks, Glassman said.
He said the FDIC was obliged to ask the two banks on Oct. 30 to pay a special guarantee fee for banks that are part of holding companies. Because they couldn’t pay the fee, Glassman said, the OCC decided to close the banks that day and put them under the FDIC’s control. The FDIC sold the nine FBOP banks as a package to Minneapolis-based U.S. Bank, a big regional institution.
Michael Kelly, testifying at the hearing, said he had asked the FDIC for another week to work out FBOP’s problems. The agency turned down his request for a meeting in Washington with potential investors that FBOP had lined up, Kelly said.
“They had marshaled the forces; they were ready to close the bank,” he said, adding that the FDIC appeared to already have lined up U.S. Bank as a buyer.
The failure of the nine banks cost the deposit insurance fund an estimated $2.5 billion. The FDIC and U.S. Bank agreed to share losses on about $14.4 billion of the purchased loans and other assets, which totaled $18.2 billion.
Tags: Chicago, Diet And Exercise, Exercise, Government Regulations, Illinois, Industry Regulation, North America, United States, Washington
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January 22, 2010: 1:07 am
Sometimes it amazed me to see the kinds of story twistings that went on, even before Congress. Apparently the good citizens in Chicago had enough of these random bank seizures. Their beloved Park National, part of the FBOP bank franchise, was taken over unfairly so they went to Washington to make their case. Perhaps they could no longer salvage their loss, but these good citizens helped cast light on the huge mess our regulators brought upon themselves. Reports from the Office of Inspector General already demonstrated the pathetically weak supervision among all the agencies (OCC, OTS, the Fed, and the FDIC). Now we found out the “closings and sellings of banks” followed neither rules nor consistency. First, OCC did not close well-capitalized banks but apparently, OTS did. “Jennifer Kelly, a senior deputy comptroller at the OCC, maintained that… We do not close banks that are well capitalized.” From OTS Fact Sheet on Wamu closure: Second, FDIC could seize good banks and package them with bad ones to help with its sales of failed institutions, and get this, at its discretion ( translation: whenever the agency felt like it). “Mitchell Glassman, director of the FDIC’s division that deals with failed banks, said the agency had put Park National and Citizens National out for bid in September to gauge interest from potential buyers. There wasn’t enough interest in buying them as stand-alone institutions as opposed to being linked to the other seven FBOP banks, Glassman said. He said the FDIC was obliged to ask the two banks on Oct. 30 to pay a special guarantee fee for banks that are part of holding companies. Because they couldn’t pay the fee, Glassman said, the OCC decided to close the banks that day and put them under the FDIC’s control. The FDIC sold the nine FBOP banks as a package to Minneapolis-based U.S. Bank, a big regional institution.” Hold on here. That was not how Wall Street Journal described the FBOP sale; it claimed Citizens National and Park National were actually healthy. “When Bad Banks Sink Good Ones The so-called cross-guarantee authority ‘prevents a bank-holding company from loading all the problem assets into one bank and letting that one go down at taxpayer expense in order to preserve the healthy bank’… When regulators shuttered the flailing banks after closing hours on Friday, the FDIC leaned on Citizens National Bank and Park National Bank, based in Chicago, to foot the bill.” Why did the FDIC use the rule on this case, especially when It didn’t appear that FBOP put all the goodies into Citizens or Park National while dumping all their junk onto their sister banks? Third, the selling of banks as a package as a preference was hypocritical at best without rules or proper follow-ups. Look at what happened after the FDIC sold FBOP to US Bank because it liked the fact that this buyer bought the entire franchise. “Madisonville branch of U.S. Bank sold to Prosperity Bank Prosperity Bank announced on Tuesday, Jan. 19, that it had signed an agreement to acquire U.S. Bank’s three Texas branches, which includes Madisonville State Bank, Citizens National Bank in Teague and North Houston Bank in Houston.” Remember this? “Friday night’s nine bank failures, the most in one day since the financial crisis erupted, will cost the FDIC’s deposit-insurance fund an estimated $2.5 billion. The U.S. Bancorp deal was the ‘least costly’ option compared with ‘other alternatives,’ the FDIC said.” For sure. Least costly option to the US taxpayers due to our regulators asleep at wheel, and best deal for US Bank. *imho* |
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