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OneUnited Bank received special treatment beyond what was disclosed
Three days later, with OneUnited slated to issue a key quarterly report, the FDIC's five board members voted unanimously to exempt the bank from a 1995 accounting rule that binds every other bank under the agency's jurisdiction. In doing so, they cited the authority provided under Frank's amendment.
Two FDIC officials said that when the board members voted, they all knew of the bank's link to Waters. But they denied it influenced their decisions, the officials said.
The exemption allowed OneUnited to add $20 million to its stated capital without moving a penny. It was allowed to claim as existing assets all of the future tax benefits it could make because of the stock losses, exceeding a general rule barring any such claims above 10 percent of their capital. This step - a substantial risk for a bank facing financial trouble - proved critical in persuading Boston's State Street Bank to invest $17 million in OneUnited, an FDIC official said.
Two other banks, also responding to the devaluation of Fannie and Freddie investments, applied to the FDIC for a similar exemption. But when the agency informed them in late 2008 that the board was unlikely to approve, they withdrew their requests, according to a report by the agency's inspector general's office. Both banks - based in Houston and Madisonville, Tex. - were allowed to fail in October 2009.
Asked to explain the differing treatment, two FDIC officials said that unlike OneUnited, neither had a plan to raise new capital and neither was minority-owned. The FDIC operates under a law that requires "all of us to preserve and protect minority institutions," Thompson said.
Still, OneUnited did not meet the normal threshold for obtaining TARP money. As the inspector general for the TARP program, Neil M. Barofsky, said in a 2009 report that referred to OneUnited's troubles without citing its name, the bank had not met five metrics, indicating it was not adequately capitalized.
Moreover, the FDIC, in a memo to the Treasury Department analyzing its TARP application, warned explicitly that the bank was in a "precarious financial position" - a statement seemingly at odds with the TARP program's stated claim of assisting only healthy and viable banks.
But a committee of regulators and a group of top Treasury officials then departed from customary practices. They did so even though one Treasury member said that "he was very concerned about this bank," according to Barofsky's report.
The report said these reviewers decided that the bank's viability could be assessed "with applied-for TARP funds taken into account" as an existing capital asset on its balance sheet. In short, the reviewers assessed the bank as though it already had the money, to make it eligible for the aid.
The resulting $12 million boost to OneUnited's bottom line - again without a penny moving anywhere - finally allowed it to look healthy enough to win the loan, which Kashkari approved in late November.
"I feel very good about the rigor that we built into our process, [and] we followed it seamlessly," said Kashkari, now an investment banker. He said he could not speak directly about OneUnited.