Fed Said to Probe BCCI Ties With Foreign Banks in U.S.
WASHINGTON - The Federal Reserve, stung by the BCCI scandal, is quietly probing whether foreign banks operating in the United States had improper links with the Luxembourg bank, according to people familiar with the effort.
The sources interpreted the effort as a Fed attempt to avoid being blindsided again by the unfolding scandal.
Extent of Dealing Sought
About two weeks ago, Fed bank supervisors began asking directors and top executives to detail the extent of their banks' dealings with the Bank of Credit and Commerce International, the sources said. It's not clear how many banks are being scrutinized.
William Taylor, the Fed's director of bank supervision, and J. Virgil Mattingly, the agency's general counsel, could not be reached for comment. A Fed spokesman, however, said, "We are not at this time doing reviews of foreign banks operating in the U.S. that may have ties with BCCI."
One source said Fed examiners went into a bank he works for to study its interbank deposits, loan participations, and other credits. The bank, he said, has done business with BCCI.
Scandal Said to Obsess Fed
Several banking lawyers said the Fed is consumed by the scandal.
"It is almost paralyzing them," said one, who did not want to be named.
BCCI was seized by regulators on July 5 after an audity by Price Waterhouse revealed that the bank was ridded with fraud.
The Fed has charged that BCCI illegally took control of 60% of First American Bankshares Inc., the Washington area's largest bank holding company, with $10.6 billion in assets. The Fed is also seeking $200 million in civil penalties from BCCI.
Critics maintain that the Fed should have unearthed BCCI's stake in First American several years ago.
As a result, the Fed has suffered "an acute political embarrassment," said Bert Ely, president of Ely & Co., an Alexandria, Va.-based bank consulting firm.
"Certainly they don't want any more [BCCIs] sitting around," said George Freibert, a former bank examiner and president of Professional Bank Services Inc., a Louisville-based consulting firm.
"What the regulators always do when they are accused of being remiss is to really focus on those problems."