It is tempting to dismiss Friday's forced closure of United Commercial Bank of San Francisco as the isolated problem of one troubled institution. As The Bee's Andrew McIntosh reported in September, the Securities and Exchange Commission was investigating the bank after discovering it had hidden huge commercial real estate losses.
But United Commercial, whose 65 branches included two offices in the Sacramento area, wasn't just the victim of its own inept – and possibly corrupt – management. Its collapse came after it received $298.7 million in federal bailout money last year. And that raises questions on why it received those funds, and why the government failed to do a better job of overseeing it.
The Troubled Asset Relief Program, which pumped hundreds of millions into United Commercial, was not supposed to be a bank-preservation act. Although some giant banks justifiably got huge sums to prevent the financial system from melting down, the program's investment in smaller banks was specifically limited to institutions that were healthy but wanted extra capital for stability or to make loans.
United Commercial, for instance, was supposed to use its TARP money to boost its lending to small and medium-size businesses, and provide mortgage relief.
Why did TARP administrators fail to see the rot that would ultimately prevent United Commercial from meeting that obligation? Investigators are currently trying to figure that out. But one likely reason is TARP's lack of transparency.
Since its establishment last year, critics inside and outside TARP have blasted that shortcoming. One is Neil Barofsky, TARP's own inspector general, who told a House committee last July that the Treasury Department "repeatedly failed to adopt recommendations" that would add clarity to how financial institutions are spending TARP money. That, Barofsky said, prevents the program from fulfilling the Obama administration's goal to give the program "the highest degree of accountability."
Pasadena-based East West Bank has taken over United Commercial's branches, and no depositors have lost any of their money. But to make those depositors good, the Federal Deposit Insurance Corp. had to pay $1.4 billion from its already overdrawn insurance fund. Consumers will make up that shortfall.
William Black, a University of Missouri economist, called the lack of checks and balances in TARP's United Commercial investment "immensely stupid." It's hard to disagree. A year after the financial system's near meltdown demonstrated the dangers of lax oversight, TARP is still resisting change. United Commercial's fate offers a warning that TARP needs to change its ways.
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