Decision to award bailout money to City National Bank probed
The Treasury Department inspector general's examination of funding for the 'bank to the stars' reflects growing concern in Washington about whether the banking rescue is working.
Can a $400-million injection of federal bailout money to the "bank to the stars" in Beverly Hills really help revive the troubled U.S. economy?
That's one of the questions the Treasury Department's inspector general is asking in a review of the decision to award bailout funds to City National Bank, The Times has learned.
The inspector general's examination of the funding for City National reflects growing concern in Washington about whether the banking bailout is working. In a private meeting Dec. 10, top financial regulators, including Treasury Secretary Henry M. Paulson, acknowledged the difficulty of keeping track of the massive funding and measuring its effects on the economy, according to documents released Wednesday.
The inquiry is not based on any suspected wrongdoing by City National. Instead, investigators see the review as a case study into how the Treasury Department is implementing its controversial program to infuse $250 billion into the nation's banking system and why certain institutions were selected to participate.
The program was launched at the peak of the financial crisis in October to strengthen banks and encourage them to lend money, thawing the freeze that has deepened the yearlong recession. But critics are questioning the effectiveness of the effort and whether bureaucrats can ensure that the money will actually be used to make loans.
So far, the Government Accountability Office and the Congressional Oversight Panel for Economic Stabilization have issued reports skeptical of the ability of the program to help the general economy and critical of the Treasury Department for not publicly explaining how it doles out taxpayer funds.
The new inquiry by Treasury Department Inspector General Eric Thorson takes a more focused examination of a single firm -- City National. The Beverly Hills institution is among 209 banks that have so far received a total of $162 billion in bailout money.
In a statement to The Times, the inspector general's office said it wanted to know "specifically how financial institutions are determined to be eligible for participation" and that it was "looking at the application and selection of one institution based in Southern California."
The statement, issued by Richard Delmar, counsel to the inspector general, did not name the bank. But City National was identified as the target of the inquiry in briefings on Capitol Hill last month, according to congressional officials who were not authorized to discuss the matter.
