Comparing the Federal Deposit Insurance Corp. to a "bleary-eyed gambler," House Banking Committee Chairman Henry B. Gonzalez last week said the agency has made a questionable bet that a Brooklyn-based savings bank can rise from the dead.
"Now FDIC's ego and billions of dollars of tax funds are on the table in a desperate long-shot hope that the franchise value of [CrossLand Savings of Brooklyn] can be propped up and insurance funds recovered," said the Texas Democrat.
"FDIC resembles the bleary-eyed gambler at midnight in Las Vegas, throwing another wad of money on the table in hopes that earlier losses can be recovered," the congressman said.
The FDIC in late January placed CrossLand Savings into receivership and chartered a new bank, CrossLand Federal Savings Bank, to take its place.
The new bank is owned and operated by the deposit insurer. Rep. Gonzalez raised questions about whether the move would result in the least costly resolution for the insurance fund, as required under law.
A report by the General Accounting Office on the CrossLand matter concludes that the assumptions used by the FDIC in deciding to take over and operate the thrift -- instead of selling the institution to private-sector bidders or paying off depositors -- were unsupported by empirical evidence.
"There are a sufficient number of unanswered questions about the validity of the assumptions made to raise serious doubts about the savings to be achieved through interim control of CrossLand," the GAO report concludes.
Rep. Gonzalez said the FDIC should reevaluate its decision in the CrossLand case and consider the possibility of reopening the bidding process.
The Federal Deposit Insurance Corporation Improvement Act of 1991 augmented the long-standing requirement that the agency use the least costly method of resolving insolvent institutions.
Under the law, the agency is required to fully document its actions.
According to the GAO, the deposit insurer failed to adequately document and analyze its decision to keep CrossLand open.