After Call From Senator's Office, Small Hawaii Bank Got U.S. Aid

The bank faced long odds. More than 1,600 banks submitted applications to the FDIC in the three months after the program was announced, according to a report by the FDIC's inspector general's office. The agency forwarded 408 applications to Treasury, which approved only 267, or roughly 16 percent of the total.

Central Pacific's situation was even bleaker because it was in trouble with the FDIC. Regulators had raised concerns about the bank earlier in the year. The bank would soon sign an agreement with its state regulator and the FDIC requiring it to raise an additional $40 million in capital and to improve its management practices.

After the bank applied for bailout funds, weeks passed. Andrew Rosen, a spokesman for Central Pacific, said that regulators had told the bank that the process would take "some time" because of the glut of applications.

In late November, still waiting for an answer, the bank's government-affairs officer called Inouye's office to ask that it check on the status of the application, according to Rosen. (Rosen said in an initial interview that the bank had not contacted Inouye's office about the application. After Inouye was contacted for this story, Rosen said that he'd been mistaken, that the bank had called Inouye's office.)

One day after the bank's request, an Inouye aide called the FDIC's regional office in San Francisco, which regulates Central Pacific. Inouye said in a statement that the staffer, Van Luong, "simply left a voicemail message seeking to clarify whether Central Pacific Bank's application for TARP funds had actually been received by the FDIC." The statement said that the bank was soon notified that the application had been received, "and that closed the matter."

"This single phone call was the entire extent of my staff's contact with regard to Central Pacific Bank, to any outside agency," Inouye said.

Internal FDIC e-mails obtained through the Freedom of Information Act show that Luong's question was referred from San Francisco to FDIC headquarters in Washington. A few days later, Alice Goodman, who heads the FDIC's office of legislative affairs -- and whose office is typically the point of contact for congressional inquiries -- called Luong to say that the application "was still under process."

The internal e-mails show that the application had been forwarded to an inter-agency council headed by the Treasury Department that reviews cases in which a bank did not meet the criteria for a federal investment. Those criteria require banks to demonstrate their viability without the benefit of federal funding.

Shortly after the Inouye staffer's phone call, the council approved Central Pacific's application.

So far, more than 600 banks have received federal investments. While some recipients have started to repay aid, the Obama administration announced this spring that it would continue to accept applications from community banks until November. The crush of calls from Capitol Hill on behalf of specific applicants led the Treasury to announce earlier year that it would start releasing a weekly list of congressional inquiries. It has yet to do so.

The question of what role members of Congress have played in influencing the Treasury's decisions is under review by the special inspector general appointed to oversee the financial rescue program. A spokesman for the special inspector general said a report is expected later this summer.

Such contacts by members and their staff do not violate the rules Congress has established to govern itself. "Congress has never been willing to adopt strong conflict-of-interest rules for its members, but for the most part, has left it up to each member to decide for themselves whether they have a potential conflict of interest," said Fred Wertheimer, president of Democracy 21, a watchdog group.

The most similar known case comes from the House. Rep. Maxine Waters (D-Calif.) arranged a meeting between regulators and OneUnited of Massachusetts, a bank in which her husband held shares. Rep. Barney Frank (D-Mass.), who did not own shares in the company, subsequently inserted language into the bailout bill that effectively directed the Treasury to give special consideration to that bank.

The report by the FDIC inspector general found that 26 of the 408 companies whose applications were sent to the Treasury faced enforcement actions as severe as those against Central Pacific. Because the FDIC inspector general did not name these 26 banks, it is unclear how many ultimately won the Treasury's approval. Nor is it clear whether any other bank used the Treasury money -- as Central Pacific did -- to address a capital shortfall identified by regulators.

Several financial analysts said they know of no other instances in which Treasury money was used this way. But they said it was impossible to be sure because banks are not required to disclose such regulatory actions, for instance those requiring that firms raise additional capital. Central Pacific had made this disclosure voluntarily.

Andrew Gray, an FDIC spokesman, said the Central Pacific decision was not unique, but he declined to name other banks, citing a policy against commenting on specific institutions.

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