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.
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