Banking Law

FinCri Advisor released a study today that reveals either an amazing coincidence or further proof that the awarding of TARP CPP money is a process subject to the same influence-peddling as just about any other federal government program that doles out dollars.

Banks that have a top executive serving as a regional Federal Reserve Bank director were nearly five times more likely to receive a TARP grant than other commercial banks, according to an exclusive FinCri Advisor analysis.

Consider the numbers: 40.5% of banks with a top executive serving on a district Federal Reserve Bank board received TARP CPP grants compared to 8.3% of all eligible U.S. banks.

Some commenters claim it's pure coincidence.

...Trabo Reed, deputy superintendent of banks for the Alabama state banking department, says the explanation is simpler: "There are some things that are coincidences. You can draw a theory that someone is on the board with the Federal Reserve. And you can look at it from the standpoint: Did the bank qualify for TARP? Both these things could be true," he says. "There could be no correlation. If they're on one of these Reserve boards, the bank may qualify for it anyway."

That might be absolutely correct. Nevertheless, if I knew a snake oil salesman who'd pay me a referral fee, I'd send him Mr. Reed's way. Just sayin...

Some sources were outraged and weren't reluctant to say so.

Ronald L. Book, a Florida lobbyist and long-time lawyer for struggling BankUnited, which applied for TARP but never heard back, says it is "outrageous and irresponsible" that so many Fed regional bank directors ended up with TARP grants for their banks. "How could they allow such insider activity to occur with the public's money?" he says. "It is really almost reprehensible that Florida banks have received so little relief from the federal government."

There are other interesting aspects of TARP winners and losers.

Banks whose CEOs serve on Fed boards in the East were more likely to get TARP money than those in the West. No banks with representation on the Minneapolis, Kansas City or Dallas Fed Banks received TARP grants. But in the Boston region, 3 of 3 banks with execs on Fed boards got CPP grants. In the Richmond Fed, 5 of 7 such bankers got CPP grants. And in the Atlanta district, 7 of 12 banks whose CEOs serve on Fed boards received TARP grants, including two in Florida, where only 18 banks statewide got any TARP funding at all.

As to the Boston region, I'd bet that Barney Frank had more to do with TARP allocations than any Federal Reserve Bank director. He's admitted that he pressured Treasury to give TARP money to one of his Beantown banks, and he wasn't embarrassed at all about it. Neither was Maxine Watters, who was an influence peddling leviathan when she pressured the regulators to grant dough to the same Boston-based institution. It was a minority-owned bank, after all, and everyone knows that such institutions have a greater right to survive than do banks owned by the non-diverse. At least, that's Barney and Maxine's public story and they're sticking to it.

I have no proof whether this is a case of coincidence or not, and I have a healthy skepticism that there's anything nefarious involved with Federal Reserve Bank directors and their banks getting TARP. Sure, I'd be as angry as Mr. Book if my client ended up with a short straw, but in this case suspicion and proof seem to be separated by an impenetrable wall.

Which fingers the real culprit in this caper: a lack of transparency. FinCri Advisor points this out.

Treasury has never revealed its criteria for awarding the grants, which has led to widespread criticism about the process.

Not merely widespread criticism results from a lack of transparency, however. Conspiracy theories always abound when a selection process is hidden behind a curtain. People tend suspect the worse, especially where the federal government is involved.

Perhaps the Fed's Inspector General's audit of the selection process will shed some light.

Perhaps.

I won't be holding my breath.