Making Government Transparent and Accountable
The Sunlight Foundation uses cutting-edge technology and ideas to make government transparent and accountable. Underlying all of our efforts is a fundamental belief that increased transparency will improve the public's confidence in government
The Sunlight Foundation Blog
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Not my bank, not my problem
But this is his bank, so it is his problem.
Sen. Daniel Inouye pressured the Treasury Department and the FDIC to approve a bailout contract with Central Pacific Financial, a bank Inouye founded and where he held most of his wealth. The bank was also in trouble with the FDIC and did not appear to meet criteria for bailout funds:
The bank, Central Pacific Financial, was an unlikely candidate for a program designed by the Treasury Department to bolster healthy banks. The firm’s losses were depleting its capital reserves. Its primary regulator, the Federal Deposit Insurance Corp., already had decided that it didn’t meet the criteria for receiving a favorable recommendation and had forwarded the application to a council that reviewed marginal cases, according to agency documents.
Two weeks after the inquiry from Inouye’s office, Central Pacific announced that the Treasury would inject $135 million.
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The bank faced long odds. More than 1,600 banks submitted applications to the FDIC in the three months after the program was announced, according to a report by the FDIC’s inspector general’s office. The agency forwarded 408 applications to Treasury, which approved only 267, or roughly 16 percent of the total.
Central Pacific’s situation was even bleaker because it was in trouble with the FDIC. Regulators had raised concerns about the bank earlier in the year. The bank would soon sign an agreement with its state regulator and the FDIC requiring it to raise an additional $40 million in capital and to improve its management practices.
Not the greatest endorsement of the bailout process. Of course, they aren’t going to tell you how this contract was approved on FinancialStability.gov.
Also, why does it seem that all senators who’ve been in office for 30 or 40 years act like they can do whatever they want.
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Full Faith and Credit
As the Deposit Insurance Fund – the fee-based safety net for customers of failed banks – shrinks alarmingly, regulators have tried to calm American taxpayers. After warning in a March 20 speech that bank failures could cost $65 billion over the next five years, Sheila Bair, chairman of the Federal Deposit Insurance Corporation, assured an audience of community bankers that “we won’t run out of money” thanks to new premiums the FDIC had imposed on them and their colleagues.
“Some ask: Why not get help from taxpayers?” Bair said. “Turning to taxpayer funding could open up a whole new debate about the degree of government involvement in the affairs of insured banks. And it would paint all banks with the ‘bailout’ brush.” Comforting, right?
Maybe not. While the insurance fund – down to a relatively meager $19 billion at the end of 2008 — indeed may stay solvent, the FDIC has been quietly preparing for the worst, asking Congress to increase its line of credit from the U.S. Treasury (i.e., taxpayers) from $30 billion to $100 billion. Unnecessary, one hopes, but consider this precedent: After a string of thrift failures in the 1980s, the Federal Savings and Loan Insurance Corporation (FSLIC) did, in fact, run out of money. Taxpayers ultimately absorbed roughly $125 billion in losses. FSLIC was abolished in 1989 and the FDIC began insuring deposits in thrifts as well as banks.
Current events are spookily reminiscent of the s-and-l crisis. As we report on the Subsidyscope Web site, 21 banks failed during the first quarter of 2009 alone, resulting in estimated charges to the insurance fund of almost $2.3 billion. Our running list of failed banks provides basic data for those who have a morbid interest in tracking the collapse of institutions around the country – and in watching the previously bloated insurance fund get smaller and smaller. For those curious about how and why a particular bank met its end, we offer, where available, a post-mortem called a Material Loss Review, prepared by either the FDIC or the Treasury inspectors general. The documents are packed with intriguing details, including measures of financial health that would never be made public if the institution were still alive.
One recent review reveals that the now-defunct and apparently ill-named Integrity Bank of Alpharetta, Ga., sank “primarily due to management’s aggressive pursuit of asset growth concentrating in higher-risk ADC [acquisition, development and construction] loans without adequate controls.” We also learn that the FDIC’s “supervisory actions were not timely and effective in addressing the bank’s most significant problems.” Not something Sheila Bair is likely to mention in her next speech.
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FDIC: The Bailout Beyond TARP
While much media attention has been focused on the Treasury Department’s Troubled Asset Relief Program, there’s been far less coverage of other government bailout programs that have been under way since last fall.
As part of our project tracking government subsidies at Subsidyscope.com, we’ve attempted to delve into some of these programs, including the Federal Deposit Insurance Corporation’s $1.4 trillion Temporary Liquidity Guarantee Program – which, incidentally, is twice the size of TARP.
The program is intended to allow financial institutions to borrow and lend more readily through two avenues. Under the Debt Guarantee Option, debt issued by June 30, 2009, maturing no later than June 30, 2012, is guaranteed by the FDIC. So far the FDIC has guaranteed $224 billion in new debt under this option, with the potential of reaching $1 trillion.
The second component, the Transaction Account Guarantee Option, gives full guarantees for certain checking and non-interest-bearing accounts through December 31, 2009. The FDIC reports that it’s guaranteed approximately $684 billion under this option so far.
So how could this program be a subsidy? Well, the government is essentially acting as a co-signer of each participating bank’s debt obligation and non-interest-bearing account, and it’s doing it for far less that what it would cost to hire a private insurer.
That’s not to say that the program is bad. According to a Treasury survey of the 20 largest banks receiving TARP money (which you can get on Subsidyscope.com), one factor that led to an increase in lending activity from November to December was the TLGP, which gave a boost to debt underwriting. Overall however, the Treasury report showed that banks slightly reduced their lending between October and December 2008 – not a great sign that the bailout is working.
We wanted to know which financial institutions were participating in the TLGP. Imagine our surprise when we learned that the only public information available is a list of the ones that aren’t participating. The FDIC’s reasoning is that it isn’t an “opt-in” program but an “opt-out” program. That’s like the CDC announcing a national epidemic by listing the cities that aren’t affected.
Seeking to make the TLGP more transparent, we filed a Freedom of Information Act request with the FDIC last December, asking for a list of all the financial institutions that are participating in the program, as well as the amount of their guarantees. In February, we got half of what we wanted.
The FDIC provided us with a list of more than 14,000 banks, bank holding companies, and thrift holding companies in the United States, showing which are and which aren’t participating in the TLGP. That list is now on Subsidyscope.com. The amounts of the guarantees however, were not disclosed. The FDIC cited two exemptions to the FOIA law: One for confidential business information (Exemption 4) and the other on agency reports regarding the supervision of financial institutions (Exemption 8). We’re still trying to get that information, and will post it if we succeed.
In light of President Obama’s call, on his first day of office, for greater transparency in government agencies —“in the face of doubt, openness prevails”— it seems the FDIC should disclose the amounts that are being guaranteed.
While the TARP program appears to be the main target of pundits and the media – ironically because Treasury has relatively open in its actions – keep in mind that sometimes it’s the wheels that don’t squeak that may also be getting greased.
