As if ShoreBank doesn’t have enough problems, the financially troubled but politically connected Chicago-based community lender is now facing a federal investigation into whether political pressure was applied to force several major Wall Street firms to bail out the bank before it was liquidated by banking regulators, FOX Business has learned.
Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program, or TARP, which has agreed to earmark $75 million to help ShoreBank survive, has now bowed to pressure from Congressional Republicans and has agreed to investigate charges that key officials in the Obama White House, as well as FDIC chief Sheila Bair, pressured Wall Street firms to donate money to keep ShoreBank alive.
In a letter to Congressman Spencer Bachus, ranking member of the House Banking Committee, Barofsky said his office has “agreed to do an audit” of the federal program that granted ShoreBank the money about two months and examine the “issues raised” in a letter Bachus sent to the White House, asking for records and other documents detailing whether key administration officials played in role in convincing Wall Street to help bail out the bank.
Several weeks ago, a number of Wall Street firms agreed to donate $150 million to prevent the liquidation of ShoreBank, which along with a $75 million grant from the TARP program would stave off an FDIC takeover. In recent weeks, however, the Federal Reserve has indicated that ShoreBank may need more money to survive, throwing the bailout into doubt. One potential fix would be to divide the bank into a “good bank” and a “bad bank,” where the soured assets would be taken over by the government and liquidated. A ShoreBank spokesman had no comment on the state of the bank’s bailout.
One thing is certain: The Wall Street bailout of ShoreBank was unusual. Scores of community banks have been allowed to fail during the economic downturn, and rarely do major banks come to the rescue of a struggling community lender, particularly with a balance sheet as impaired as ShoreBank’s. In fact, Goldman CEO Lloyd Blankfein took time out from his busy schedule to make calls on behalf of ShoreBank to drum up enough money to prevent an immediate takeover of the bank.
But senior Wall Street executives tell FOX Business that the political pressure to prevent ShoreBank, which has ties to the Obama administration and has even been singled out for praise by the president himself, was enormous. The pressure included calls from leading Democratic figures with ties to the White House, Wall Street executives say, and Bair herself. Wall Street executives were reminded that the bank has ties to top presidential adviser Valerie Jarrett.
Through a spokeswoman, Jarrett says she played no role in the bailout.
Bachus isn’t convinced and he hopes the investigation sheds some light on the politics behind the attempted bailout.
"The American people deserve to know whether, and to what extent, the Administration pressured banks that previously received TARP fund to inject capital into the Chicago-based bank,” he said.