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What did Sheila Bair know about Banco BuenaVentura, and when did she know it?

By   /   Friday, September 23rd, 2011  /   Comments Off on What did Sheila Bair know about Banco BuenaVentura, and when did she know it?

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It might be the understatement of the decade to describe Sheila Bair as a complex creature.

The recently retired chair of the Federal Deposit Insurance Corp. was early to spot the evils of sub-prime mortgage lending — she warned about them as a Treasury official in 2002.

During the 2008 financial crisis, she famously feuded with Treasury Secretary Timothy Geithner. Bair is a blunt-talking Republican from Kansas. She has a pragmatic, populist streak that makes her hard to pigeon-hole.

She wanted much tougher rules for big banks and as the crisis unfolded, she pounded on Vikram Pandit, CEO of Citigroup, the struggling financial giant.

Ordinarily, that would make me think that Bair was my kind of politician.

But there’s this little problem with Bair and the FDIC that just won’t go away. That little problem is Banco BuenaVentura, a defunct Oxnard financial institution that catered to Hispanics. A year after opening, it was effectively dissolved by Bair and the FDIC when regulators feared something was amiss. (Click here to read related article.)

Banco BuenaVentura was founded by James Montgomery Sr., a veteran banker from the Midwest who told a number of folks, including me, that he had a strong relationship with Bair, who became FDIC chair in 2006.
He spent years working on the concept for Banco BuenaVentura, which he figured could make big money gathering cheap deposits and offering fee-based services, including low-cost money transfers, to immigrants from Mexico and Latin America.

At the time, the banking system was very open-minded about the immigration status of Hispanics. Part of the thinking has been that because banks are good at tracking money-laundering operations and people who deposit large amounts of cash, it was better for illegal immigrants to use banks than black market organizations that were closely tied to the drug trade.

But for reasons that still demand an explanation, Montgomery had a tough time getting a bank charter for his pet project. His son Jeff — who had a mortgage foreclosure and, as a claimed in a recent lawsuit, a drug-related arrest in the Cayman Islands — was part of the reason.

The bank had first applied for a charter through the Office of Thrift Supervision. When it looked like the OTS wouldn’t grant the charter with Jeff Montgomery on board, the bank tried for a state charter with the California Department of Financial Institutions. The state didn’t want Jeff Montgomery involved, either, and required that he not vote any stock or be an officer or director.

There’s reason to believe that Bair, the nation’s top bank regulator, knew what was going on before any of this started. On Nov. 6, 2007, the day before Banco BuenaVentura applied for its first charter, she received a personal letter from James Montgomery regarding a pre-filing conference.

A heavily redacted letter between Montgomery and Bair remains in the file. Shortly after the bank opened, it was raided by the FBI. Nobody has ever explained the raid, and the FDIC has pointedly blocked any and all efforts by the Business Times to get more information.

So, the mystery remains. What did Bair know about Banco BuenaVentura, and when did she know it? What was the FBI looking for? Why have charges never been filed? What do you have to do to get the FDIC mad enough to dissolve your bank and force you to return investors’ money?

When she left the FDIC this summer, Bair avoided the Washington merry-go-round and took a post as a researcher with the Pew Center, a public policy think tank. She gave a few final interviews and then slipped out the spotlight.

Meanwhile, a lawsuit by some disgruntled investors is winding its way through the courts. As Stephen Nellis writes in this week’s edition, the investors want to know what happened between the bank and its regulators.
Maybe we’ll actually find out. But more likely the tale of Banco BeunaVentura will resemble the title of a recent movie. In other words, it’s complicated.

• Contact Editor Henry Dubroff at [email protected].

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