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FBOP: Congress Vs Financial Regulators



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. They felt that 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, there was a discrepancy among regulators regarding seizures of well-capitalized institutions.  OCC emphatically stated it would not close well-capitalized banks. 

The problem?  OTS did.  It declared Wamu a failure even though the agency confirmed the bank was well-capitalized "through the date of receivership" in an official release of fact sheet.
"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:
"WMB met the well- capitalized standards through the date of receivership."
 
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
Citizens National, Though strong, Goes Down with FBOP's Weak Sisters...
 
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*