Banking Law

A reader asked me what I thought of the potential damage to Sheila Bair that might be caused by recent allegations by House Republican Rep. Darrell Issa of California that she may have ordered the FDIC to "ease up" on a bank owned by the family of Illinois Democratic Senate candidate Alex Giannoulias.

Rep. Darrell Issa of California, the House Oversight and Government Reform committee?s top Republican, on Wednesday wrote FDIC Chairwoman Sheila Bair, asking why the Federal Deposit Insurance Commission waited ?so long? to close Broadway Bank when it appeared to be severely undercapitalized.

Giannoulias, whose family owned the bank, faces Rep. Mark Kirk (R-Ill.) in the race for President Barack Obama?s former Senate seat.

Broadway Bank was taken under FDIC conservatorship last week at a cost of $394.3 million. Issa, in his letter, claims that the bank showed signs of serious distress as early as the end of 2008 ? profits fell 94 percent from 2007 to 2008. When the FDIC took over the bank last week, it did so at a 36 percent loss.

?The high losses in the case of Broadway Bank suggest there may be a bias in the way the FDIC evaluates when to take action on a distressed bank,? Issa writes to Bair. ?Was Mr. Giannoulias? candidacy for the United States Senate considered when the FDIC was deliberating about whether to take action on Broadway Bank??

Issa also wants to know if the White House knew anything about the bank closure. The FDIC in late January warned Broadway Bank that it needed to raise more capital. On March 9, Giannoulias met with White House Senior Adviser David Axelrod, Issa says.

?The fact that senior White House officials such as David Axelrod are meeting with Mr. Giannoulias at the time the FDIC is covering hundreds of millions in losses at Broadway Bank raised a flag,? Issa said.

Apparently, some readers believe that because I'm no fan of Sheila Bair, therefore I'm a fan of any critic of Sheila's who comes down the pike. I'm not. I'm especially not a fan of critics who appear to be motivated solely by making political silk purses out of sow's ears. If the critic is a professional politician, he's got as much credibility in my book as "Tommy Flanagan, The Pathological Liar" character created by John Lovitiz for "Saturday Night Live." Issa's trying to damage a Democrat running for Obama's Senate seat, and this is pure politics, in my view. The FDIC took the bank down and that fact has harmed Giannoulias. If Sheila wanted to help his candidacy, the FDIC could have found a way to prop it up until after the election. The fact that Giannoulis met with Axelrod also is a non-event. He's running for Obama's former Senate seat, it's critical to the Democrats that they retain the seat, he's in trouble, and Illinois Democratic advisor Axelrod is helping him. I don't see the "apparent impropriety" that Issa sees, but then I don't view the world through the soiled lenses of partisan politics.

The problem those of us who represent community banks have with Ms. Bair today is the same problem I discussed in her first anniversary review. She's more concerned about pushing her pet consumer protection populist agenda than she is in protecting the insurance fund and the survival of the FDIC-insured community banks whose assessments help maintain the insurance fund. We've got legitimate disputes with her. We don't need to manufacture bogus issues.

Finally, I can't think of a person less likely to be harmed by partisan political charges than The Teflon Care Bair. She's a darling of the Democrats, the liberal media, and huge swaths of the general public that conflates "Wall Street Banks" with "commercial banks."  I think that this flash-in-the-pan accusation will dry up and blow away. I don't see it sticking.

Of course, as with any other hot opinion issued on this blog, I could be dead wrong. If so, I'm certain I'll hear about it.