Broadway Bank Looms Over Illinois U.S. Senate Race

Produced by Sam Hudzik on Thursday, April 22, 2010

A big deadline is just a few days away for Chicago-based Broadway Bank. The family of U.S. Senate candidate Alexi Giannoulias owns the bank, which has been ordered by regulators to raise millions in capital. Giannoulias held a top job there before his election as state treasurer four years ago, so he has a lot riding on the bank's future. We take a look at how that might play out in the days ahead.

Congressman Mark Kirk's Senate campaign has been relentless. Kirk has taken advantage of a stream of bad news for his Democratic rival, state Treasurer Alexi Giannoulias, most of it connected to the bank run by his family.

WEB AUDIO: It's time for Alexi to answer...

This is an internet video put together by Kirk's campaign featuring unflattering news clips...

WEB AUDIO: If you didn't know, Mr. Giannoulias. As the senior officer, why didn't you know was was going on?

Since the primary, the Illinois Republican Party has sent reporters about three dozen press releases attacking Giannoulias on Broadway Bank issues. Not just about a consent order requiring the bank to raise tens of millions in capital within 90 days. But also about loans he approved years ago for people who turned out to be connected to organized crime. And Kirk is questioning whether Giannoulias' decision to file for an income tax extension was at all connected to the bank's troubles.

KIRK: I worry that the coming implosion of his family bank may have tax implications for him, and therefore he's not willing to release his taxes.

GIANNOULIAS: Just about every sentence that Congressman Kirk utters these days, is a noun, a verb and Broadway Bank.

In a speech last week in Chicago, Giannoulias said he wanted to "elevate" the debate and talk about health care and the economy. But he did address the bank controversy head on, noting - as he often does - that it's been four years since he was senior loan officer, and that in the current economy a lot of community banks have faced unpredictable problems.

GIANNOULIAS: I accept responsibility for the less than 9 percent of currently non-performing assets that were booked while I was there. But Congressman Kirk's claims beyond that are simply not true and he knows it.

After the speech, when asked to respond to news reports about his family's business, he distanced himself further.

GIANNOULIAS: Probably have to ask the bank about that.

and...

GIANNOULIAS: Uh, I don't know. You'd have to ask the bank that. As I mentioned, they're doing everything they can, but it's really tough out there.

Giannoulias has also tried to proclaim the inevitability of the bank's failure. Last month, he told newspaper editorial boards that Broadway Bank was likely to get taken over by federal regualtors...

GITELSON: By admitting and saying this is going to be coming about, he's the one who tries to control the story.

Alan Gitelson is a political science professor at Loyola University Chicago. Gitelson says the bank offers Republicans a never-ending line of attack on Giannoulias' claim of business acumen.

GITELSON: This is a lousy situation. There's no way that this particular issue is good for him. It's not good for him now, in April, and it won't be good for him again come November. But under the circumstances, I think he's better off having the issue resolve itself one way or another now, than he is having this drag out for months and months.

But a resolution may not be imminent. The 90 days regulators gave the bank to boost its capital technically come up this weekend. But spokespeople for the Federal Deposit Insurance Corporation and state regulators say consent orders of this type don’t contain drop-dead deadlines. (Neither spokesperson would comment directly Broadway Bank.) If a bank like Broadway has a lead on some capital that could come through in a week or so, according to Greg Hernandez with the FDIC.

HERANDEZ: At that point the bank can go to its regulator and say, 'Hey. We need some additional time.' So, you know, the whole purpose is to keep banks operating and not failing.

Of course, the bank's fate could already be sealed and we wouldn't know anything about it.

HERNANDEZ: Bank failures are very secret and confidential matters.

Hernandez says if state regulators determine the risk is too great, they will pull the bank's charter, and name FDIC the receiver.

HERNANDEZ: Then, at that point, the FDIC begins the process of confidentially marketing an institution so that it can find an acquiring bank.

A process that, first and foremost, seeks to protect the customers' deposits. Neither Hernandez nor the spokeswoman for the state regulators, would comment directly on Broadway Bank.

There's no doubt, though, that the scope of interest in Broadway's future far exceeds most community banks. If the bank gets taken over, reporters and cameras will visit its branches in droves. But don't expect what could be a highly public ending for Broadway Bank to end Giannoulias' campaign. Asked if he would drop out if the bank's taken over and the political pressure builds, Giannoulias replied, "That will never happen."

http://www.wbez.org/Content.aspx?audioID=41499