The summer doldrums have hit Washington, the nation’s capitol, big time this summer. President Obama has taken the politically mandatory swim at one of the lovely Gulf of Mexico beaches and then retreated to Martha’s Vineyard. Congress is long gone, leaving the Washington heat and humidity behind. The FOMC has met and there it is evident that its latest policy decision has made the stock market and public confidence in the economy worse — at least over the short run.
 
On Friday, the FDIC announced the failure of only one community bank with the grim FDIC press release reading “First Midwest Bank’s acquisition was the least costly resolution for the FDIC’s DIF. Palos Bank and Trust Company is the 110th FDIC-insured institution to fail in the nation this year and the 14 in Illinois.” De Palos was a good-sized community bank with $493 million in total assets and $ 467.8 million in total deposits. Fortunately, it was a purchase assumption transaction that made all depositors whole. The FDIC has worked very hard during this difficult year to protect all depositors at failed community banks as the behemoth banks and their customers and creditors were protected by the TARP bailouts.
 
TARP and government bailouts remained in the political news as the congressionally appointed TARP
Overseer, Elizabeth Warren, released a report tracking billions of TARP bailout flows to major foreign banks and the House Ethics Committee accused House Financial Services Committee powerhouse Maxine Waters (D-California) of three ethics charges. Representative Waters had approached former Treasury Secretary Hank Paulson late in 2008 to set up a meeting with the officials of a minority-owned OneUnited Bank located in Boston.
 
One of the OneUnited Bank officials at the meeting also was the incoming chairman of the National Bankers Association, the very small, perennially understaffed national trade association for minority banks. Following the meeting, $12 million — repeat million — in TARP funds was made available to OneUnited Bank in late 2008, at about the same time that $45 billion — repeat billion — was made available to both Citicorp and Bank of America, and tens of billions more to the largest commercial and investment banks that had also just converted to bank holding companies to access the Federal Reserve funding windows. The top leadership of the nation’s largest banks had and have no problem accessing top administration officials (like Secretary Paulson or Secretary Geithner) or ranking Fed officials — a door that is not open to officials of individual community banks. Representative Walters facilitated this access for minority-owned community bank. This is not an unusual happening. Facilitating such access has been an ongoing role (and in my judgment an appropriate ongoing role of members of the Congress and their staffs since time immemorial). TARP funding did save Citicorp and the Bank of America and, apparently, the small minority bank OneUnited. Stock holders, in turn, weren’t wiped out.
 
The Fly in The House Ethics Committee’s Ointment: Waters’ Husband Owned OneUnited Stock
 
The Waters story in this weekend’s The Wall Street Journal carries the headline “Waters Goes on Offensive Against Ethics Case.” The Journal reports that the “Congresswoman said the charges ignored the purpose of the meeting. The two bank officials attended not on behalf of OneUnited, she said, but to represent the National Bankers Association, a trade group for smaller banks owned by minorities and women.”
 
A few comments as this most delicate and sensitive matter goes forward. Getting the time and attention of busy, top officials is part and party of the ongoing Washington political process. There are thousands of letters on congressional letterheads sent every year to the administration and regulatory officials requesting consideration of a pending matter. This is the mother’s milk of a functioning representative democracy. Members of both political parties do it all the time. It provides constituent service. It helps political fundraising. The heads of financial behemoths that channel millions and millions in political contributions can pick up the phone and call the Secretary of the Treasury, the Chairman of the Federal Reserve and even the President of the United States as Travelers head Sandy Weill did when he was putting together the Citibank-Traveler merger. This is part of the political turf of the savvy heads of financial behemoths. This avenue almost always isn’t open to the head of a community bank or credit union. Rep. Waters’ contact opened the door to Treasury Secretary Paulson, which apparently opened the door to TARP assistance. Only the appropriate regulators would know whether this assistance kept OneUnited bank alive as humongous TARP assistance kept Citicorp and Bank of America alive. And only the appropriate regulators know how many additional, minority-owned inner city banks would fail today and tomorrow without TARP money and/or regulatory forbearance.
 
Remember that Friday marked the failure of the 110th community bank in 2010, joining the 140 community banks that failed in 2009 and the additional hundreds of community bank failures that remain in the regulators pipeline. The broader issue of the fairness of aiding all the financial behemoths with TARP funding while small banks were left to the mercies of the free market remains front and center in today’s political debate. It dominated much of the political discussion over the Dodd-Frank regulatory restructuring bill. It was behind the U.S. Treasury’s February 3rd announcement of the Obama Administration’s “enhancements for TARP initiative for community development financial institution…that lend to small businesses in the country’s hardest-hit communities.” This announcement amended an earlier announced Obama program also facilitates raising and matching private capital to allow more community development financial institutions (CDFIs) to become eligible for the TARP program. Larger banks are willing to play in this capital-raising ballpark if there is TARP involvement.
 
Only the participants at the Waters-arranged meeting with Treasury Secretary Paulson know whether the broader issue of the desperate straits of many inner-city banks and CDFI banks, thrifts, and credit unions was raised. It should have been. The problem goes far beyond the viability of one minority-owned bank to perhaps the very future of minority-owned banks in general. And having headed up a national banking trade association with CDFI members (that had frequent contact with the National Bankers Association), I have no doubt that the community banks met the high certification requirements. CDFIs play a significant role in extending banking services to underserved and unbanked communities while promoting jobs and economic development. Hopefully, the large-scale failure of certified CDFI community banks and credit unions serving America’s inner cities is not a public policy alternative.