Despite Extra Help, Weakest Bailed-Out Bank Still Among Worst

Rep. Barney Frank, chairman of the House Financial Services Committee, confers with Rep. Maxine Waters. (Win McNamee/Getty Images)

At the center of the ethics controversy enveloping Rep. Maxine Waters, a California Democrat, is OneUnited, the nation’s largest African-American-owned bank.

The House ethics committee announced three charges against Waters Tuesday, alleging that she improperly used her office to help the bank, in which her husband had a financial stake.

The Investigative Reporting Workshop at American University points out that OneUnited  was the weakest bank to receive bailout moneyat the time of its rescue, though that part of the bailout was intended to help healthy banks:

When then-Treasury Secretary Henry Paulson announced creation of the so-called “Capital Purchase Program” in October 2008, he said it was directed at “healthy institutions.” Nevertheless OneUnited Bank of Boston received a $12.1 million capital injection from the Treasury Department on Dec. 19, 2008.

That OneUnited wasn’t exactly a “healthy institution” isn’t new. As we pointed out last week, a month before the Treasury awarded OneUnited bailout money, regulators at the FDIC had accused its management of unsound banking practices and excessive executive perks.

But the bank had friends in high places. When Waters, a member of the Financial Services Committee, told her committee’s chairman, Rep. Barney Frank, about her conflicts of interest, he told her to stay out of the matter. Frank, a Massachusetts Democrat, then proceeded to help the bank on his own. From The Wall Street Journal:

A provision designed to aid OneUnited was written into the federal bailout legislation by Mr. Frank, who is chairman of the financial-services panel. Mr. Frank has said he inserted the provision to help the only African-American owned bank in his home state. He said in an interview that Ms. Waters’s interest “had zero impact on the outcome because I would have done it anyway.”

In other words, OneUnited didn’t go through the same door as the other banks, so it’s not too surprising that it got bailout money despite being weak.

Strength and weakness were calculated based on banks’ ratio of Tier 1 capital (that’s equity and disclosed reserves) to total assets. The FDIC requires banks to have at least a Tier 1 ratio of 3 or 4 percent, depending on their classification. According to the Investigative Reporting Workshop, OneUnited’s Tier 1 ratio was just 1.8 percent in the quarter before it received bailout money.

OneUnited representatives did not comment for the Investigative Reporting Workshop story. Frank has said he has “no regrets” about helping the bank.

Marian WangBut despite its $12 million influx of federal cash, the bank still ranks among the worst of those bailed out. The bailout money has not been repaid, and OneUnited “has not yet met” all the goals of the corrective plan set forth by federal and state regulators, according to the Investigative Reporting Workshop.

Unlike most of the other banks, the piece pointed out, OneUnited’s financial troubles were “not primarily due to bad loans” or subprime lending, but were instead due to its Fannie Mae and Freddie Mac investments.

Marian Wang

Marian Wang is ProPublica’s first reporter-blogger. She previously worked for Mother Jones, where she spearheaded the magazine’s social media strategy. Since graduating with honors from Northwestern University’s Medill School of Journalism in 2007, she worked in Chicago as a freelance investigative reporter and blogger for The Chicago Reporter, Chi-Town Daily News, and ChicagoNow. She now lives in New York. She likes it a lot. Find Marian on Twitter: @mariancw

Reposted with permission from Pro Publica.

Published by the LA Progressive on August 11, 2010
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About Marian Wang -- Pro Publica

Marian Wang is ProPublica's first reporter-blogger. She previously worked for Mother Jones, where she spearheaded the magazine's social media strategy. Since graduating with honors from Northwestern University's Medill School of Journalism in 2007, she worked in Chicago as a freelance investigative reporter and blogger for The Chicago Reporter, Chi-Town Daily News, and ChicagoNow. She now lives in New York. She likes it a lot.

Find Marian on Twitter: @mariancw

Comments

  1. Barney Franks, Maxine Waters, Chris Dodd & some others back in 2005 & in 2006 are the ones that said Freddie & Fannie didn’t need any oversight because they were doing a good job. Freddie & Fannie had been told to make loans to people even if they could not afford it by Bill Clinton & Franks, Waters, Dodd & others in the House. Even McCain tried to get them to rule on oversight to Freddie & Fannie because he was afraid it was getting out of control & so was Bush but this Democratic Congress ruled it down because of Franks mostly.
    This is want is so bad about Fannie & Freddie who were made to do this but now they got their hand out for more. We have got to draw a line. I think they should be allowed to fail. I think Waters should go before the ethics board or just step down. Rangel should step down because here we have a man that was writing tax laws & not fully paying his taxes. I do not know what else you can say, as this has been going on for a couple of years. My word, look at all the people in Congress past & present that have never paid all their taxes, but yet they get to slide. It is sort of like the health care bill. The public is expected to go on Obamacare or pay a fine but they get to keep their good insurance. It just kills me Nancy Pelosi telling us how much we are going to like it. If we are going to like it why aren’t her & her husband not going on it but keeping their good insurance? I feel like I am being told by Pelosi, Reid, Obama & Biden don’t do as I do, do as I tell you to do. I could really put a foot up each one of their rears.

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