WASHINGTON — Roughly two years after its near collapse, critical questions about the fall of Wachovia Corp. remain unanswered.

Members of the Financial Crisis Inquiry Commission hit on several Wednesday during a hearing on the issue, including why regulators let the bank grow so fast without adequate capital and liquidity, how the Internal Revenue Service suddenly intervened to help Wells Fargo & Co. buy the banking company without direct government support and whether the right fix for "too big to fail" is to let an even bigger company absorb a troubled bank.

Phil Angelides, the panel's chairman, argued that regulators should have done more to head off a collapse, citing multiple warning signs.

"It's almost like financial Groundhog Day," he told officials of the Federal Deposit Insurance Corp. and Federal Reserve Board. "The pattern is very similar in terms of growth, leverage, risk and, on the upside, we don't take the kind of prudential steps we should take. Do you believe in retrospect that was a failure or a big, gaping hole in the system?"

Angelides and others are likely to take up a similar line of questioning during a hearing today that is to feature FDIC Chairman Sheila Bair and Fed Chairman Ben Bernanke.

From 1998 to 2007, the combined assets of the five largest banks in the country tripled, from $2.2 trillion to $6.8 trillion.

The asset size of Wachovia alone grew 17.4%, the commission said. As of the second quarter of 2008, the Charlotte company had assets of $812 billion, making it the fourth-largest U.S. banking organization.

"At any time prior to the 27th of September, did you ever say we had to look at the systemic risk implications?" Angelides asked.

Regulators acknowledged faults, including a lack of data about how Wachovia's possible failure would affect the markets, but said the situation was complicated.

"Growth isn't by itself a bad thing," said Scott Alvarez, the Fed's general counsel.

John Corston, the FDIC's acting deputy director in the division of supervision and consumer protection, agreed but said there were signs of trouble.

"One of the things I don't think that we fully appreciated was the sensitivity [of] the capital markets and the funding markets to the credit risk [in] some of those products and how quick that pullback could be," Corston said. "When the markets became so displaced, this institution stood out as one that really could not weather that storm."

Though the Fed and FDIC said they had been aware of certain issues and pressed Wachovia to raise capital, they said their agencies had a limited ability to check on the bank for potential systemic risk. "We didn't have the tools to do anything other than what we did," Alvarez said. "Our ability to look at the systemic effects was limited."

They also said it was very difficult to address problems that were beginning to emerge in 2008 when there was less funding and capital available and scarce liquidity.

By the time regulators stepped in, Wachovia appeared on the brink of failure, largely due to its exposure to option adjustable-rate mortgages acquired in its in 2006 deal for Golden West Financial Corp., a $125 billion-asset federal thrift holding company in Oakland, Calif. The FDIC announced on Sept. 29, 2008, that Citigroup Inc. would buy Wachovia's banking operation through an "open-bank transaction" in which no federal money would be provided at first, though the FDIC could be on the hook for Wachovia's mortgage losses, most of which were tied to adjustable-rate loans.

Under the deal, Citi would have absorbed the first $42 billion of losses on a $312 billion loan pool. But the deal fell apart after Wells Fargo launched an unexpected counteroffer for Wachovia without FDIC assistance. The new bid was made possible, in part, by a sudden change in the tax code by the IRS to let banks carry forward losses from the purchase of troubled financial institutions.

The change drew the ire of several panel members who used it to rebut conventional wisdom that Wachovia was not helped by the government.

"How can you say it wasn't a loss to the government?" said Bill Thomas, a former chairman of the House Ways and Means Committee who is the commission's vice chairman. "It was a significant loss of revenue to the Treasury."

Robert Steel, a former chief executive of Wachovia, argued that the IRS deal was not a government bailout because it potentially benefited several institutions, not just Wachovia and Wells.

But Thomas and other commission members disagreed, raising concerns about why the IRS made the change at the time that it did.

"It was a rifle shot," Thomas said. "They changed the law for a specific group of institutions. Did anyone think that was lawful?"

The IRS announced the change on Sept. 30 after pressure from Treasury officials. Thomas said the FDIC and Federal Reserve officials, who denied they were involved in the change, clearly benefited from it.

"You were pleased the IRS made the change unilaterally, without consultation with the legislative branch," said Thomas. "It cost the taxpayers to utilize this. You [the FDIC] were home free. The Fed was home free."

He was seconded by Byron Georgiou, another commissioner, who said the tax change was a "different form of government assistance, perhaps a delayed form of government assistance."

"But at the end of the day, the taxpayers will have less revenue over time," Georgiou said.

He was also concerned by the ultimate disposal of Wachovia, raising concerns that the crisis had only reinforced too big to fail by letting large companies like Wells grow even bigger.

Corston acknowledged this is a problem but said the recently enacted regulatory reform law would help correct it by giving the FDIC resolution powers and access to more market information. "If you look at each crisis, the concentration of assets, you see more and more concentration in banking assets after each crisis," he said. "Before Dodd-Frank, that really was the only way out."

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