No bank turned down

After more than 100 banks announced that their requests for capital injections from the Treasury Department had been approved, we started wondering why not a single bank had disclosed to investors that its application had been denied.

We found our answer this week in the report that the Government Accountability Office issued on the Treasury Department's oversight of the $700 billion Troubled Asset Relief Program (TARP). The report said that, through Nov. 21, none of the four regulatory bodies charged with screening applications had recommended to the Treasury Department that any of the banks or savings and loan be rejected.

Instead, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency simply encouraged applicants who appeared unlikely to win approval to withdraw from the process.

No bank has publicly announced the withdrawal of its TARP application, either. National City Corp., a Cleveland bank that has been hit hard by losses on real estate loans, acknowledged that one reason it agreed to be acquired by PNC Financial Services Group Inc. was because it was clear that it would not receive federal aid.

The Treasury Department plans to inject $250 billion in capital into U.S. financial institutions by purchasing preferred stock that will give taxpayers an ownership stake in those companies, but not a say in their management. The shares carry an annual dividend of 5 percent for the first five years, and 9 percent thereafter. 

The GAO report said that the Treasury Department, in consultation with the regulatory agencies, developed a standardized process for evaluating the financial strength and viability of the applicants. But even though the Treasury Department's Office of Financial Stability has the final say on which banks get taxpayer money, the report makes clear that the winners are being selected by the same regulators that have been in charge of supervising them all along.

The Treasury Department said at the start of the process that it would not disclose the names of the banks rejected for aid by the Office of Financial Stability, headed by bailout czar Neel Kashkari. One fear is that making that information public might spook customers or investors, putting some of them in an even more precarious position.

But without knowing which financial institutions have been turned away from the capital purchase program -- and why -- taxpayers have no way to assess whether their money is being directed in the most effective manner. In addition to tracking the institutions that are getting money from the Treasury Department, BailoutSleuth will keep tabs on all that have announced applications, to see if we can spot some that have been politely denied.

We'll keep you posted on what we find.