As House members debated the financial regulatory package, Republicans Judy Biggert and Darrell Issa surprisingly won adoption of an amendment Wednesday that would require the Federal Deposit Insurance Corp.'s inspector general to investigate whether political pressure played a role in securing private-sector assistance for troubled institutions.
Though Chicago-based ShoreBank was not identified in the text of the amendment, the community development bank was clearly the target of the proposal, and was the subject of a heated debate that preceded its adoption. It is unclear whether the Senate will support the amendment.
The proposal calls for an investigation to be conducted when private assistance is provided to institutions that have received an FDIC order to "cease and desist unsafe and unsound banking practices" on or after Jan. 1, 2009.
In May, ShoreBank secured $140 million of private investments from some of the nation's largest financial institutions. Investors included Goldman Sachs Group Inc., General Electric Co.'s GE Capital, Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., U.S. Bancorp, Morgan Stanley, Northern Trust Corp. and PNC Financial Services Group Inc.
The FDIC and the Illinois Department of Financial and Professional Regulation issued a cease-and-desist order against ShoreBank in July 2009. On March 10, the regulators amended the order to include capital targets, which gave the bank 60 days to boost capital ratios.
Supporters said the administration has been too close-lipped in response to questions about alleged influence on big banks that participated in ShoreBank's rescue. "It is not an investigation of the private sector. It is an investigation of the administration," said Biggert, an Illinois Republican.
Rep. Spencer Bachus, R-Ala., said "the public is entitled to some response from the White House."
Democrats who opposed the measure called it a political move. "I kind of resent the fact that someone would come here and try to politicize a local issue in Chicago," said Rep. Luis Gutierrez of Illinois.
After senators returned to the debate, Senate Banking Committee Chairman Chris Dodd said he had "concerns about the open endedness" of the amendment and the "potential to do more harm than good."
Rep. Mel Watt, D-N.C., said a probe could interfere with efforts to help find capital for ailing banks. "This is … too broad because it exposes to investigation even the ability of the FDIC to talk to individual investors in banks," he said.
ShoreBank has deep political ties. The Clinton administration was fond of its work. The bank also has been praised by President Obama, when he was a community organizer on Chicago's South Side and during his tenure in the Illinois Senate and U.S. Senate.
Meanwhile, the investment funds remain in escrow as ShoreBank awaits approval from the Treasury Department for a $75 million investment from the Community Development Capital Initiative. The investments are conditioned upon one another.
"The process is not going as fast we'd like," said Brian Berg, ShoreBank's spokesman. "But we are working through it."