Rep. Issa Questions Why FDIC Waited to Close Broadway Bank

April 29, 2010 (LPAC)—While Barack Obama was campaigning for Alexi Giannoulias in Illinois, Rep. Issa wrote a letter to Sheila Bair, Chairman of the FDIC inquiring as to why the Broadway Bank run by Giannoulias's family was not closed down earlier. As reported previously, the Broadway Bank loaned $20 million to two organized crime-linked felons while Alexi Giannoulias was the senior loan officer of the bank. The bank also serviced Tony Rezko, the godfather of both Rod Blagojevich and Barack Obama, who is now in jail awaiting sentencing on fraud charges. Alexi Giannoulias, a former basketball buddy of Obama, was elected state Treasurer thanks to Obama's support, despite the questionable connections of his bank, and is now the Democratic candidate to fill Obama's old U.S. Senate seat.

The point that Issa makes is that according to the FDIC the cost of Broadway's failure will be $394.3 million. This is a loss of approximately 36% to the FDIC. "The amount of the Broadway loss, both in dollars and as a percentage of total deposits, is significantly higher than those figures for the other six Illinois banks closed on April 23, 2010. These figures suggest that the FDIC may have waited longer than it should have to act to prevent foreseeable losses in the case of Broadway Bank."

"As early as the end of 2008, there were signs that Broadway bank was in serious trouble. The ratio used to determine the health of banks is a widely used industry metric called the Texas ratio. Banks with a Texas ratio above 50% are considered in need of additional capital. Broadway Bank had a Texas ratio of 94% at the end of 2008. The Bank's profits had likewise decreased by more than 94% from 2007 to 2008."

Rep. Issa then further discloses that "On January 26, 2010, Broadway Bank entered into a consent order with the FDIC and the Illinois Division of Banking, requiring the bank to raise tens of millions in capital. The consent order served as a warning to Broadway and Mr. Giannoulias that the bank was on the verge of collapse. Weeks later, on or about March 9, 2010, a meeting took place at the White House between Senior Advisor to the President David Axelrod and Mr. Giannoulias, who is a candidate for the U.S. Senate from Illinois.

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

Rep. Issa then asks: "Why did the FDIC wait so long to close Broadway Bank? Were any creditors benefited by the delay in closing down Broadway Bank? 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. Was Mr. Giannoulias' candidacy for the United States Senate considered when the FDIC was deliberating about whether to take action on the Broadway Bank?"