WASHINGTON - While the government devoted significant time and treasure to saving several large U.S. banks, it let some smaller institutions fail when there were alternatives, according to Sheila Bair, the former chairman of the Federal Deposit Insurance Corp.

In Bair's new book "Bull by the Horns," released this week, she provides surprising new details about how the Federal Reserve Board's inaction prevented the rescue of United Commercial Bank in California, and how politics may have helped doom ShoreBank in Chicago.

Attractive private-sector deals were within reach for both institutions, Bair claims, but were impeded at the last minute.

In the case of UCB, an $11 billion-asset institution that failed in November 2009, reluctance by the Fed to sign off on Chinese regulators scuttled a potential buyout from the Chinese bank Minsheng.

UCB had a largely Asian customer base and an affiliate in China, and Minsheng was pursuing an open-bank acquisition of the faltering West Coast lender - a deal that would have prevented $2.5 billion in losses to the Deposit Insurance Fund.

"That would have been a great result from the standpoint of protecting the U.S. government against losses," Bair writes.

The FDIC was not the only U.S. government entity standing to lose from a UCB failure. A year earlier, regulators had approved a $300 million capital infusion for the bank's parent company through the Treasury Department's Troubled Asset Relief Program. (UCB's leadership was later found to have fraudulently hid the extent of the bank's problems.)

But foreign banks could only acquire U.S. institutions with an official determination from the Fed validating the regulatory system in the acquirer's home country, and the central bank had not yet made such a ruling about the Chinese Banking Regulatory Commission.

Such a determination ultimately came last May, when three Chinese-controlled banks gained approval from the Fed to enter the U.S. banking market.

But Bair said allowing the Minsheng deal to go through in 2009 would have saved the FDIC the costs it incurred from selling UCB to the U.S.-based East West Bank in a failed-bank purchase, not to mention the loss of the $300 million in Tarp funds.

Bair suggested that sensitivity to allowing Chinese interests into the U.S. market affected the Fed's decision-making.

"I had always found the CBRC … to be a serious, conservative, and prudent regulator. Whatever other issues and disagreements the United States has with China, I really didn't see how allowing Minsheng to buy the bank would violate U.S. public policy goals," Bair wrote. "But I suspect that the Fed— already reeling from public criticism, particularly from the right— didn't want to take on the issue of whether a Chinese bank should be able to buy a U.S. bank.

"It seemed to me that the acquisition of that relatively small bank by a Chinese bank could have provided a good test case for the Fed, but the Fed did not feel that it had time to fully consider the Minsheng acquisition."

The collapse of ShoreBank, which failed in August 2010, was also preventable, Bair said, calling it "one of the most politically challenging" closures "of the crisis."

"I was batted around on bank closings a lot," she wrote. "Closing a bank is never a happy task, and there were always two sides: those who said we had waited too long and those who said we had prematurely closed the institution. But the political maneuvering and finger-pointing reached its apex with ShoreBank."

Other troubled Chicago-area banks had their share of political implications because of President Obama's ties to the area. But Bair said ShoreBank, which became a target of congressional Republicans who argued it benefited from undue influence, was a special case.

"Any bank failure in the Chicago area was politically charged, given the red-hot animosity between President Obama and members of the House GOP," she wrote. "No matter what we did in Chicago, it seemed that one side or the other would go after us."

The $2.2 billion-asset community development bank had been in Chicago for more than 70 years and ran into trouble with a higher-risk loan strategy after 2000.

Bair said the bank's focus on financing housing and business initiatives in Chicago's low-income neighborhoods was admirable but that it "started going astray" and "relying too much on its cachet and glamorous reputation among liberal groups and did not focus enough on the basics of running a bank."

Her primary concern with its failure was the potential price tag; the bank's community-development focus narrowed the search for qualified bidders in an FDIC auction.

Bair attempted to aid an effort by some of the biggest banks - all of which had received Troubled Asset Relief Program funds - to save ShoreBank by raising capital for it. She specifically credited Lloyd Blankfein, the chief executive officer of Goldman Sachs, for leading that charge despite the political risk of appearing to help a bank with deep connections to Democrats.

Both Bair and Blankfein made hurried calls to potential investors in a last-ditch attempt to raise enough capital so that the bank could qualify for a special Tarp program meant for community development financial institutions.

But the political environment proved challenging.

Soon after Goldman started its effort, the capital raising drew attention from the press. A Democratic lawmaker, Bair wrote, said big banks had the "moral and economic obligation" to help ShoreBank continue its mission, while "folks on the right immediately accused Goldman of trying to curry favor with the Obama administration."

For her part, Bair, a Republican, said she was trying to prevent losses to the DIF.

"I was trying to minimize losses to the Deposit Insurance Fund by reaching out to potential investors, as I had done several times before when bank management and staff efforts had been unsuccessful," she writes. "Why was this institution having such a hard time finding investors? A big part of the problem was all of the politicization on the left and right. If it had been a bank in Minnesota, we would not have had those issues."

Blankfein succeeded in getting $153 million in capital commitments, enough for the bank to submit its Tarp application. But the interagency group of regulators assigned to rule on Tarp applications balked.

"Were our examiners wrong, or had the other agencies been scared off by the political heat associated with doing anything to help ShoreBank? I will never know." Bair writes. "Tarp applications were handled by career examiners. .... It might have well been a disagreement among career staff on the bank's capital needs. But the political controversy tainted the whole process, in my view."

Ultimately, however, the capital raising efforts were at least partially successful. The investors planning to recapitalize the failed bank opted instead to form a new charter that bid on ShoreBank after it collapsed, leaving the FDIC with a lower price tag than if it had had to just liquidate the institution. (The agency estimates the cost will be $367.7 million.)

The involvement of former ShoreBank stakeholders in the new charter drew criticism, but Bair said a subsequent oversight investigation found no wrongdoing.

"I would like to state for the record that whatever else their sins might be, Goldman Sachs and the rest of the big banks that invested in ShoreBank did so for a nonpolitical reason: to support its traditional mission and model of serving low-income populations," she said. "They also saved themselves and the Deposit Insurance Fund a lot of money. I certainly never received any pressure from anyone in the administration to help ShoreBank, nor did any of those banks to my knowledge. Indeed, the FDIC inspector general went over all of it with a fine-toothed comb and found no evidence of political pressure."

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