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Hearing examines Park National Bank
seizure
seizure
By MARY O’CONNOR
Contribution by SEAN JENKINS
WASHINGTON | Federal regulatory financial committees met with bank and
community representatives to examine the take over of Park National Bank (PNB)
and its parent company First Bank of Oak Park (FBOP).
The Subcommittee on Financial Institutions and Consumer Credit of the House
Committee on Financial Services convened a hearing entitled “The Condition of
Financial Institutions: Examining the Failure and Seizure of an American Bank.
Testifying before the committee Jan. 21 was Mike Kelly, FBOP Corp., Chairman
and Chief Executive Officer and Steven McCullough, Chief Executive Officer of
Bethel New Life and Jeff Austin III, Vice Chairman, Austin Bank both located on
Chicago’s Westside. Participants in the hearings examined the practices of federal
lending and particularly the October 2009 take over of PNB and its holding
company FBOP Corp by the FDIC.
FBOP Corp was a $19 billion privately held holding company headquartered in
Oak Park IL with locations in Maywood and Chicago’s west and south side’s.
FBOP was the largest privately held bank in the U.S. with one-third of its branches
located in “low-income census tracts”.
In connection with the closure of nine other FBOP bank subsidiaries, the FDIC
assessed cross-guaranty liability against, and demanded immediate payment from,
Park National Bank and another FBOP bank subsidiary, Citizens National Bank,
resulting in their closure.
The cross guaranty provisions in the Federal Deposit Insurance Act were enacted
by Congress in the Financial Institutions, Reform, Recovery and Enforcement Act
of 1989 (FIRREA). The bill was signed into law on August 9, 1989. The purpose
of cross guaranty is to make every insured depository institution owned by the
same company financially responsible for the failure or resolution costs of any
affiliated insured institution. The provision lessens the cost to the FDIC’s Deposit
Insurance Fund.
Subcommittee Chairman Luis Gutierrez (D-IL) opened the hearing by noting that
the objective was to provide banks with better insight into factors used by
regulators when making decisions with respect to bank failures and to help
regulators better understand the impact of such closures on banks and
communities.
McCullough criticized the FDIC’s takeover of FBOP, noting that Park National Bank
was not only financially successful, but also committed to the community,
contributing roughly 27 percent of its annual profits to charitable organizations in
the community. He called on Congress to reign in “overly powerful and
unaccountable regulators” to prevent failures of similar community-based banks.
Kelly provided a short summary of the events that led to the closure of FBOP, and
expressed his hope that the FBOP story would “challenge elected officials, policy
makers and regulators to better understand the contributions and challenges of
community banks.”
Kelly opened his testimony, “The purpose of my testimony this morning is to
provide a short summary of the events that led to the closure of nine community
banks owned by FBOP Corporation on October 30, 2009. I would also like to give
some of my thoughts on policy changes that are needed to help community banks
facing similar capital issues.”
When asked by Jeb Hensarling (R-TX) if FBOP’s concentration in Fannie Mae and
Freddie Mac preferred stock led to its failure, Kelly said that regulators
encouraged the bank to purchase such securities and provided incentives for such
investments. Rep. Hensarling then posited whether the bank would have survived
had it not purchased Fannie and Freddie securities, to which Kelly responded that
such securities resulted in “a $900 million loss that wiped out half of [the bank’s]
capital.”
Richard Hartnack, U.S. Bank, Vice Chairman, spoke of U.S. Bank’s involvement in
the post-failure acquisition of the deposit franchise of the FBOP subsidiaries,
including Park National Bank, noting his belief that the FDIC bidding process for
failing banks is “well run, transparent and very business-like in all regards.” When
pressed by Chairman Gutierrez to detail what U.S. Bank has done since its
acquisition to keep the community activities of FBOP alive, Mr. Hartnack agreed to
provide the subcommittee with a written report of the same. Erik Paulson (R-MN)
further questioned what U.S. Bank could do to be an effective partner in the
community, to which Mr. Hartnack responded, “we tell our story in every possible
place and let communities know we are open for business to make loans.”
Jeff Austin III, Vice Chairman, Austin Bank expressed frustration that regulatory
practices often disadvantage community banks in favor of larger institutions and
non-banks, making it harder for community banks to serve their communities. He
called on Congress to separate the traditional banking model from the investment
banking model and to reign in penalties imposed on community banks, often
included in the group of institutions held responsible for recent failures. When
pressed by Rep. Hensarling to elaborate on the impact of regulatory intervention,
Mr. Austin opined that regulatory examinations are “tedious” and “take banks away
from lending money.”
Mitchell Glassman, FDIC, Division of Resolutions and Receiverships. Director,
described the FDIC’s basic process for handling the failure of insured depository
institutions and defended such policies when questioned by subcommittee
members, including the FDIC’s actions with respect to FBOP’s subsidiaries.
Whether Glassman is right or wrong does not change what happened to FBOP.
What remains in the aftermath of the takeover in places like Maywood and Austin
is a void in community banking.
Credits: United States House of Representatives, Association of Corporate Counsel, WBEZ photo.
Click to read testimony by Mike Kelly
Click to read testimony by Rep. Luis Gutierrez
Contribution by SEAN JENKINS
WASHINGTON | Federal regulatory financial committees met with bank and
community representatives to examine the take over of Park National Bank (PNB)
and its parent company First Bank of Oak Park (FBOP).
The Subcommittee on Financial Institutions and Consumer Credit of the House
Committee on Financial Services convened a hearing entitled “The Condition of
Financial Institutions: Examining the Failure and Seizure of an American Bank.
Testifying before the committee Jan. 21 was Mike Kelly, FBOP Corp., Chairman
and Chief Executive Officer and Steven McCullough, Chief Executive Officer of
Bethel New Life and Jeff Austin III, Vice Chairman, Austin Bank both located on
Chicago’s Westside. Participants in the hearings examined the practices of federal
lending and particularly the October 2009 take over of PNB and its holding
company FBOP Corp by the FDIC.
FBOP Corp was a $19 billion privately held holding company headquartered in
Oak Park IL with locations in Maywood and Chicago’s west and south side’s.
FBOP was the largest privately held bank in the U.S. with one-third of its branches
located in “low-income census tracts”.
In connection with the closure of nine other FBOP bank subsidiaries, the FDIC
assessed cross-guaranty liability against, and demanded immediate payment from,
Park National Bank and another FBOP bank subsidiary, Citizens National Bank,
resulting in their closure.
The cross guaranty provisions in the Federal Deposit Insurance Act were enacted
by Congress in the Financial Institutions, Reform, Recovery and Enforcement Act
of 1989 (FIRREA). The bill was signed into law on August 9, 1989. The purpose
of cross guaranty is to make every insured depository institution owned by the
same company financially responsible for the failure or resolution costs of any
affiliated insured institution. The provision lessens the cost to the FDIC’s Deposit
Insurance Fund.
Subcommittee Chairman Luis Gutierrez (D-IL) opened the hearing by noting that
the objective was to provide banks with better insight into factors used by
regulators when making decisions with respect to bank failures and to help
regulators better understand the impact of such closures on banks and
communities.
McCullough criticized the FDIC’s takeover of FBOP, noting that Park National Bank
was not only financially successful, but also committed to the community,
contributing roughly 27 percent of its annual profits to charitable organizations in
the community. He called on Congress to reign in “overly powerful and
unaccountable regulators” to prevent failures of similar community-based banks.
Kelly provided a short summary of the events that led to the closure of FBOP, and
expressed his hope that the FBOP story would “challenge elected officials, policy
makers and regulators to better understand the contributions and challenges of
community banks.”
Kelly opened his testimony, “The purpose of my testimony this morning is to
provide a short summary of the events that led to the closure of nine community
banks owned by FBOP Corporation on October 30, 2009. I would also like to give
some of my thoughts on policy changes that are needed to help community banks
facing similar capital issues.”
When asked by Jeb Hensarling (R-TX) if FBOP’s concentration in Fannie Mae and
Freddie Mac preferred stock led to its failure, Kelly said that regulators
encouraged the bank to purchase such securities and provided incentives for such
investments. Rep. Hensarling then posited whether the bank would have survived
had it not purchased Fannie and Freddie securities, to which Kelly responded that
such securities resulted in “a $900 million loss that wiped out half of [the bank’s]
capital.”
Richard Hartnack, U.S. Bank, Vice Chairman, spoke of U.S. Bank’s involvement in
the post-failure acquisition of the deposit franchise of the FBOP subsidiaries,
including Park National Bank, noting his belief that the FDIC bidding process for
failing banks is “well run, transparent and very business-like in all regards.” When
pressed by Chairman Gutierrez to detail what U.S. Bank has done since its
acquisition to keep the community activities of FBOP alive, Mr. Hartnack agreed to
provide the subcommittee with a written report of the same. Erik Paulson (R-MN)
further questioned what U.S. Bank could do to be an effective partner in the
community, to which Mr. Hartnack responded, “we tell our story in every possible
place and let communities know we are open for business to make loans.”
Jeff Austin III, Vice Chairman, Austin Bank expressed frustration that regulatory
practices often disadvantage community banks in favor of larger institutions and
non-banks, making it harder for community banks to serve their communities. He
called on Congress to separate the traditional banking model from the investment
banking model and to reign in penalties imposed on community banks, often
included in the group of institutions held responsible for recent failures. When
pressed by Rep. Hensarling to elaborate on the impact of regulatory intervention,
Mr. Austin opined that regulatory examinations are “tedious” and “take banks away
from lending money.”
Mitchell Glassman, FDIC, Division of Resolutions and Receiverships. Director,
described the FDIC’s basic process for handling the failure of insured depository
institutions and defended such policies when questioned by subcommittee
members, including the FDIC’s actions with respect to FBOP’s subsidiaries.
Whether Glassman is right or wrong does not change what happened to FBOP.
What remains in the aftermath of the takeover in places like Maywood and Austin
is a void in community banking.
Credits: United States House of Representatives, Association of Corporate Counsel, WBEZ photo.
Click to read testimony by Mike Kelly
Click to read testimony by Rep. Luis Gutierrez