Looks like we may soon be learning more about the preferential treatment major banks may have enjoyed in the wake of the AIG bailout.
Last week, we noted Rep. Spencer Bachus’s efforts to bring to light the issue of smaller U.S. banks that are allegedly being stiffed on their loans to an AIG subsidiary even as major CDS counterparties (some of them foreign banks) were paid off in full. Bachus is the ranking member on the House Financial Services committee, and he aired his concerns at a hearing and in letters he sent to both Geithner and Barney Frank, the committee chairman.
After we reported this, the Wall Street Journal dug up a couple examples of just this issue, one of which occurred in Bachus’ district.
Now, it seems, the committee is taking some steps toward investigating Bachus’ complaint.
A Financial Services committee aide says, “we are gonna ask the Treasury Secretary and the Federal Reserve to look into the issue [Bachus] raises.” In letters to Geithner and Fed. Chairman Ben Bernanke, Frank writes:
I do not know what basis there is for the point he makes but it is a serious issue and must be addressed. Clearly, any discrimination against American owned financial institutions compared to the treatment received by foreign owned institutions would be unacceptable to the Congress, and I believe to the American public. I understand the importance of honoring foreign obligations because of the need for us to continue to receive a flow of foreign investment. But differential treatment in favor of foreign investors does not seem to me to have any basis whatsoever in the law, in policy, and certainly not in the need for a public acceptance of your actions. I therefore ask you to look into this situation thoroughly.
Now, there’s a more general aspect to this as well that has less to do with foreign vs. domestic institutions–specifically, that major banks of all sorts were made whole on risky derivative trading before the debts owed to smaller, more risk-averse institutions were even considered. Frank doesn’t raise that issue, but the results of this inquiry could nonetheless be revealing.
We’ll post the full letter, and supplemental information, very shortly.
Late update: You can see the full letter, and enclosed materials, here.
