Regulators closed five banks Friday night - including three more in the familiar territory of Florida and Georgia - bringing the year's total to 108.

The biggest bank to close was 15-branch LibertyBank, based in Eugene, Ore., which had $768.2 million in assets, $718.5 million in deposits.

The bank, which had been hit hard by residential real estate projects that went bad, reported net operating losses of $34.3 million last year. It remained in the red this year, reporting a loss of $31.6 million in second quarter.

In April, the Federal Reserve ordered the bank's holding company, Liberty Financial Group, to develop a plan to boost capital levels. In May the Federal Deposit Insurance Corp. delivered one of its most strict enforcement actions available, notifying the bank it had become "significantly undercapitalized" and must sell enough shares to become sufficiently capitalized or find a buyer or merger partner.

Home Federal Bank, of Nampa, Idaho, acquired Liberty's deposits, paying a premium of 1 percent, and also took $419.7 million of the failed bank's assets.

Also closing Friday were:

·        The Cowlitz Bank, Longview, Wash. ($529.3 million in assets, $513.9 million in deposits)

·        Bayside Savings Bank of Port Saint Joe, Fla. ($66.1 million in assets, $52.4 million in deposits)

·        Coastal Community Bank of Panama City Beach, Fla. ($372.9 million in assets, $363.2 million in deposits)

·        NorthWest Bank and Trust of Acworth, Ga. ($167.7 million in assets, $159.4 million in deposits)

Both Bayside Savings Bank and Coastal Community Bank had the same holding company: Coastal Community Investments Inc. Both were taken over by Centennial Bank of Conway, Ark., which already had a dozen branches in Florida.

As BailoutSleuth reported earlier tonight, Coastal Community Bank was recently told by regulators to alter or void a $2.5 million loan it made to the president of its insurance subsidiary.

Heritage Bank, of Olympia, Wash, absorbed Cowlitz Bank's nine branches, all of its deposits and $329.6 million of its assets. The FDIC agreed to share in losses on $160.9 million of those assets.

Centennial Bank assumed all 13 of Bayside's and Coastal Community's branches, along with all of their $415.6 million in deposits and $439 million in assets. The FDIC will share in any losses on $351.1 million of the acquired assets.

State Bank and Trust Co., of Macon, Ga., took over NorthWest Bank's two branches, as well as its deposits and assets. It got a loss-sharing deal on $107.6 million of those assets.

The deals left the FDIC with nearly $550 million in unwanted assets, including loans and property, that it will liquidate through auctions or other types of sales.

The FDIC said Friday's closings would cost its already hard-hit deposit insurance fund an estimated $334.7 million.

The Federal Deposit Insurance Corp. entered cease-and-desist orders against 29 banks in June, and issued more "prompt corrective action" orders against three others.

Two of the banks that received the prompt corrective action orders - North County Bank in Arlington, Wash., and Cowlitz Bank in Longview, Wash. - were found to be critically undercapitalized and were given 30 days to raise new money, find a buyer or merger partner, or risk being taken over.

Both orders were issued June 24, meaning the deadline has already passed.

The third bank, Coastal Community Bank of Panama City Beach, Fla., was told to change or void a transaction in which the bank loaned $2.5 million to the president of its insurance subsidiary to finance his purchase of the business.

Regulators had previously declared Coastal Community to be seriously undercapitalized. The FDIC told Coastal Community to remove the loan from its books by refinancing the loan with another, non-affiliated institution, or voiding the transaction.

Of the 29 banks and holding companies that got cease-and-desist orders, two had received taxpayer money through the Troubled Asset Relief Program. GulfSouth Private Bank, of Destin, Fla., received $7.5million in aid. Lone Star Bank, of Houston, got $3.07 million.

Both were told to develop plans to strengthen management, boost or maintain capital levels, review their provisions for loan losses and find ways to reduce negatively affected assets.

The FDIC also terminated 11 cease and desist orders, some of them against banks that have since been declared insolvent. It also terminated one prompt corrective action order.

Republican Carly Fiorina, who is challenging Democrat Barbara Boxer for her U.S. Senate seat in California, says she would have voted against TARP had she been in office in 2008.

But Fiorina's criticism of the bailout hasn't stopped her from accepting contributions from some of its biggest beneficiaries.

Among Fiorina's 20 largest contributors, according to the Center for Responsive Politics, are the employees and political action committees of several TARP recipients, including Morgan Stanley (which produced  $47,450 in contributions), Goldman Sachs  & Co.($16,800), Zions Bancorp ($13,100) and Bank of America ($10,400).

Collectively, those four institutions received $66.4 billion in taxpayer aid through the Troubled Asset Relief Program. None of them is based in California, the state Fiorina is vying to represent.

According to press clippings on her own website, Fiorina has repeatedly said that the Wall Street bailout didn't work because it failed to get credit flowing again.

"Taxpayers are rightfully frustrated by the fact that their dollars are going to bail out big businesses and banks, yet Main Street still lacks access to credit and to basic reforms that will help stimulate job creation," reads "Carly's Financial Reform Principles" which are posted on her campaign site.

No TARP recipients are among Boxer's  top 20 contributors.

California is home to 72 institutions that received money from TARP's Capital Purchase Program - the bank bailout - which is more than any other state.

As a news organization, BailoutSleuth does not take sides politically, and has no opinion on the wisdom of TARP. But with the bailout becoming an issue in some Congressional races, we have decided to keep tabs on the ties those candidates have with banks that received bailout money.

A Fiorina spokeswoman, Andrea Saul, did not answer BailoutSleuth's questions about how the candidate can justify accepting contributions from the very companies that benefited from the legislation she criticizes. Saul did note, however, that Boxer has accepted money from Wall Street firms as well. 

Citigroup Inc. agreed to pay $75 million to settle charges by the Securities and Exchange Commission  that it misled investors about its level of exposure to assets based on subprime mortgages, the agency announced today.

The statements were made between July 20 and Oct. 15, 2007, when Citigroup said that its investment unit had a subprime exposure of $13 billion or less, when it was actually in excess of $50 billion.

"The rules of financial disclosure are simple -- if you choose to speak, speak in full and not in half-truths," said Robert Khuzami, the SEC's enforcement head, in a statement.

 

The SEC's complaint was filed in the U.S. District Court for the District of Columbia on Thursday, the same day the settlement was announced.

In addition to charging Citigroup with misleading investors, the SEC also charged one current and one former executive for their role in causing the company to make the misleading statements.

Former Chief Financial Officer Gary Crittenden agreed to pay $100,000 to settle the charges against him, and former investor relations head Arthur Tildesley Jr. - now head of cross marketing - will settle his case for $80,000.

 

The SEC noted that Citigroup's statements came at a time when nervous investors were seeking details about Wall Street's exposure to subprime securities, and that the company's assurances "made a bad situation worse."

"Even as late as fall of 2007, as the mortgage market was rapidly deteriorating, Citigroup boasted of superior risk management skills in reducing its subprime exposure to approximately $13 billion," Khuzami said. "In fact, billions more in (collaterized debt obligations) and other subprime exposure sat on its books undisclosed to investors."

Citigroup, according to the SEC, was omitting two categories of subprime-backed assets when it touted the $13 million figure: "super senior" tranches of collaterized debt obligations and "liquidity puts." The company didn't disclose that it had more than $40 billion in subprime exposure in those areas until November 2007, when they declined in value.

 

After Citigroup ran into even deeper financial problems in 2008, it received $45 billion in taxpayer aid through the Troubled Asset Relief Program, as well as government guarantees on more than $300 billion of its toxic assets.

 

Citigroup repaid $20 billion of that money last December, and the Treasury Department converted the remaining $25 billion into common stock that it is slowly liquidating.

Regulators closed seven more banks Friday - all in different states - pushing the total for the year beyond 100.

The biggest bank to fail was Crescent Bank and Trust Co., of Jasper, Ga., which had just over $1 billion in assets. The Federal Deposit Insurance Corp., as receiver, arranged for Renasant Bank, of Tupelo, Miss., to take over Crescent's 11 branches, its $965.7 million in deposits and virtually all of its assets.

This week's closings boosted the toll so far this year to 103, compared with 64 for the same period of 2009.

The other banks seized Friday were:

n  Sterling Bank, of Lantana, Fla., which had $407.9 million in assets and $372.4 million in deposits.

n  Home Valley Bank, of Cave Junction, Ore., with $251.8 million in assets and $229.6 million in deposits.

n  SouthwestUSA Bank, of Las Vegas, which had $214 million in assets and $186.7 million in assets.

n  Williamsburg First National Bank, of Kingstree, S.C., which had $139.3 million in assets and $134.3 million in deposits.

n  Community Security Bank, in New Prague, Minn., with $108 million in assets and $99.7 million in deposits.

n  Thunder Bank, of Sylvan Grove, Kan., with $32.6 million in assets and $28.5 million in deposits.  

IberiaBank, based in Lafayette, La, took over Sterling's six branches, along with its deposits and assets. It entered into a loss-sharing deal with the FDIC on $244.3 million of the failed bank's assets.

The Federal Reserve said in a June enforcement order that Sterling was "severely undercapitalized,'' and told the bank to either raise additional funds or find a buyer. Crescent Bank and Trust also had been given 30 days to solve its financial problems or face closure.

South Valley Bank & Trust Co., of Klamath Falls, Ore., bought Home Valley's five branches and its assets and deposits. The FDIC agreed to share in any losses on $211.6 million of the assets.

Plaza Bank, of Irvine, Calif., acquired SouthwestUSA's lone branch, its deposits and $137.3 million of its assets. The FDIC will share in any losses on $111.3 million of those assets, and will retain another $49.4 of the closed bank's assets for later disposition.

First Citizens Bank and Trust Co., of Columbia, S.C. took over Williamsburg First National's five branches and all of its deposits and assets. It entered into a loss-sharing deal on $64.4 million of the assets.

Roundbank, of Waseca, Minn., absorbed Community Security Bank, while Bennington State Bank, of Salina, Kan., took over Thunder Bank.

The FDIC said the seven closings would cost its deposit insurance fund an estimated $431 million.

This week, President Obama signed into law the most sweeping regulatory changes the financial services industry has seen in decades. The bill also quietly and unceremoniously turned the page on the $700 billion Troubled Asset Relief Program.

That's not to say TARP will come to end - the Treasury Department will likely spend years collecting from the companies that have yet to repay their government aid.

BailoutSleuth examined the roster of companies that accepted money through TARP's Capital Purchase Program - the bank bailout - to determine which of its more than 700 participants owe the most.

Through the end of June, 82 banks -- including 8 of the 10 with the largest government investments -- had repaid some or all their preferred shares. But the program still has $58 billion outstanding, according to Treasury's latest transactions summary.

Below are 10 banks and holding companies that have the largest obligations to taxpayers.

10.  Synovus Financial Corp.; holding company for 30 banks

$967.9 million outstanding

Synovus is the holding company for 30 different banks based in Alabama, Florida, Georgia, South Carolina and Tennessee. Its largest, Synovus Bank, has more than 300 branches across the south, although the company is in the process of consolidating its charters.

The company received its TARP aid in December 2008 and has yet to pay any of it back. Synovus raised $1 billion from private investors this spring, although that funding will not immediately be used to retire the TARP debt.

In May 2009, Synovus' then-president and chief operating officer, Fred Green III, left the company unexpectedly. He was later replaced by Kessel D. Stelling Jr.  Last month, CEO Richard Anthony took an indefinite leave of absence to combat what the company said was a blood vessel disorder. Stelling became acting CEO.

9.  Huntington Bancshares; holding company for The Hunting National Bank

$1.4 billion outstanding

The bank, based in Columbus, Ohio, has 832 branches across the country. Huntington received $1.4 billion in government investment in November 2008, and it has yet to redeem any of the preferred stock it issued to the Treasury in that deal.

Standard & Poor's recently upgraded its outlook on the company to positive from negative, after the company reported its first quarterly profit in two years.

8.  Zions Bancorp; holding company for Zions First National Bank and others

$1.4 billion outstanding

Zions Bancorp is the holding company for eight different banks based in the west, the largest of which are the 148-branch Zions First National Bank, the 114-branch California Bank & Trust and the 97-branch Amegy Bank N.A.

The company hasn't repaid any of the $1.4 billion it received through TARP in  November 2008. The Salt Lake Tribune reported that the company has raised $615 million in new capital since mid-May. "We are preparing ourselves for an eventual repayment of TARP, and so that's one of the potential uses of the money," James Abbott, head of investor relations for the company, told the newspaper.

7.  Marshall & Ilsley; holding company for M&I Marshall and Ilsley Bank

$1.7 billion outstanding

Four banks are under the Marshall & Ilsley umbrella, including Milwaukee's M&I Marshall and Ilsley Bank, which has 370 branches. The holding company received $1.7 billion in taxpayer aid in November 2008 but hasn't paid any of it back. The bank, with branches in Arizona, Florida, Indiana, Kansas Minnesota, Missouri and Wisconsin, recently extended a moratorium on home foreclosures.  

6.  CIT Group Inc.

$2.3 billion outstanding

Taxpayers should not expect to see any of this money again. CIT filed for bankruptcy Nov. 1, 2009, and is the largest of four TARP financial institutions to fail. Treasury's investment in CIT is now valued at zero.

CIT has become a flashpoint in the TARP debate, since Treasury initially insisted that only health banks would receive taxpayer assistance -- yet CIT went bust less than a year after getting billions in aid. Although the results of bankruptcy proceeds may give taxpayers a chance at partial recovery, don't hold your breath.

"Treasury expects to lose its entire investment in CIT," Treasury Secretary Geithner said earlier this year.

5.  KeyCorp; holding company for KeyBank N.A.

$2.5 billion outstanding

The bank has yet to repay any of the aid it received in November 2008. With more than 1,000 branches in 15 states, this institution - along with Synovus Financial Corp and Regions Financial Corp. -- may become buyout candidates as merger-and-acqusition activitiy returns to the banking sector, Reuters reported.

4.  Fifth Third Bancorp; holding company for Fifth Third Bank

$3.4 billion outstanding

Fifth Third has not redeemed any of the preferred stock that it sold to the government on New Year's Eve 2008. The Cincinnati-based bank has more than 1,300 branches in 12 states. Fifth Third -- along with Huntington and KeyCorp -- could be a target of Japanese bank Sumitomo Mitsui Financial Group, which is seeking a stake in a U.S. bank, Bloomberg recently reported.

3.  Regions Financial Corp.; holding company for Regions Bank

$3.5 billion outstanding

Regions Bank has more than 1,800 branches in 16 states. It got $3.5 billion loan in TARP money in November 2008 and hasn't paid any of that back.

 The company's former CEO Dowd Ritter -- who retired April 1 -- was named the second "least valuable" leader of a financial institution by Bloomberg Markets Magazine for earning $9.67 million in 2009, while the company lost more than $6.6 billion from 2008 to 2009. KeyCorp's Henry Meyer II got the top title.

2.  SunTrust; holding company for SunTrust Bank

$4.9 billion outstanding

Georgia' largest bank has more than 1,700 branches in 11 states, plus Washington, D.C. It received a pair of capital injections via TARP, taking in $3.5 billion in November 2008 and additional $1.35 billion the following month. It has not repaid any of the government's investment.

Last week SunTrust sold $17 billion in managed assets held by a subsidiary to Pittsburgh's Federated Investors. TheStreet.com is speculating that UK's Barclays may make a bid for SunTrust, which is struggling due to its exposure to residential real estate in Florida, a state that has been hit hard by a wave of foreclosures.

1. Citigroup; holding company for Citibank

$14.5 billion outstanding

The TARP recipient with the largest outstanding balance, Citigroup ran into trouble largely because of it exposure to collateralized debt obligations, which once were viewed as relatively safe investments. Backed by home loans - and in some cases sub-prime home loans - their value plummeted once the housing bubble burst in 2008.

Citigroup received $25 billion in Treasury's first wave of Capital Purchase Program investments in October 2008. Less than two months later, it got a controversial second bailout of $20 billion through another TARP vehicle, the Targeted Investment Program (Bank of America was the only other TIP recipient).

In December 2009, Citigroup repaid all $20 billion of its TIP money. As for the remaining $25 billion, Treasury converted the Citigroup preferred stock it received for that money into 7.7 billion shares of common stock, giving the government a 27 percent ownership stake in the company.

In May, Treasury sold a portion of the shares for $6.2 billion, and in June another sale yielded $4.3 billion. The agency said today it has given Morgan Stanley, its sales agent, the authority to sell another 1.5 billion shares. If the brokerage completes all of those sales, Treasury would have 3.6 billion shares remaining.

Citigroup's stock is currently trading for around $4 a share.

Eight banks are creeping closer to granting the Treasury Department the right to appoint directors to their boards, through their failure to make quarterly dividend payments on their TARP aid, the program's Special Inspector General revealed Wednesday.

Banks that got taxpayer money through the Troubled Asset Relief Program were required to issue preferred stock or other securities to the Treasury and to make regular dividend payments.

If a TARP recipient misses six quarterly payments in a row, Treasury gets the right to appoint two directors to its board.

In his latest quarterly report, TARP Special Inspector General Neil Barofsky said that Saigon National Bank in Westminster, Calif., is the first -- and so far only -- only bank to miss six consecutive dividend payments.

The report said Treasury currently is working on a strategy for appointing representatives to Saigon's board.

Barofsky's report noted that eight other institutions have now missed five consecutive payments, totaling $25 million. Thus, they are dangerously close to hitting the threshold for Treasury intervention.

The banks that missed five payments - and the size of the government's TARP investment - are:

-- Anchor BanCorp Wisconsin Inc., holding company for AnchorBank, $110 million

-- Blue Valley Ban Corp., holding company for Bank of Blue Valley, $21.8 million

-- Commonwealth Business Bank, $7.7 million

-- Lone Star Bank, $3.1 million.

-- OneUnited Bank, $12.1 million

-- Pacific Capital Bank, $180.6 million

-- Seacoast Banking Corporation of Florida/Seacoast National Bank, $50 million

-- United American Bank, $8.7 million

A total of 105 banks that got government money through TARP's Capital Purchase Program have missed at least one quarterly payment. Those missed payments total $159.8 million.

The report also reiterated criticisms of TARP issued by Barofsky's office over the past quarter, including concerns about the abrupt closing of auto dealerships by Chrysler LLC and General Motors Corp., and the process by which Treasury has been selling stock warrants it received as part of its bank investments.

And the study issued the special inspector general's most stinging criticism yet of the Home Affordable Modification Program, a $50 billion effort to help homeowners avoid foreclosure through mortgage modifications.

Barofsky and other watchdogs have hammered the department over its refusal to state how many homeowners it expects to assist through HAMP modifications.

"Without such clearly defined standards, positive comments regarding the progress or success of HAMP are simply not credible, and the growing public suspicion that the program is an outright failure will continue to spread," the report said.

Barofsky's report also took Treasury to task for failing to implement some of his office's previous recommendations, such as the need for detailed documentation of communications surrounding warrant repurchases and the need for independent analyses of companies that received extraordinary TARP assistance.

The report also noted that through the end of June, Barofsky's office had 104 active criminal and civil investigations, up from 84 the previous quarter. The investigations cover subjects including TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, public corruption, false statements, obstruction of justice, trade secrets theft, money laundering and tax issues.

Baforsky's report also revealed that his office will produce a study of  how Treasury hires contractors to administer TARP; whether their prices are fair and reasonable; and whether vendors are performing all their work.

In 2008, BailoutSleuth revealed that when Treasury released a copy of a contract with Bank of New York Mellon Corp., it blacked out the section indicating how much the company would earn for its work administering the assets of the $700 billion TARP initiative.

Contracts with law firms, accounting firms and financial services firms handling other portions of TARP were similarly redacted.

According to Barofsky's quarterly report, other forthcoming audits will examine:

-- The status of Citigroup and the Asset Guarantee Program

-- Capital Purchase Program applications that received conditional approval

-- The selection of asset managers for the legacy securities program

-- Collateral securing loans issued through the Term Asset-Backed Securities Loan Facility, known as TALF

-- Whether pay czar Kenneth Feinberg applied compensation criteria consistently for all TARP recipients subject to pay rules and review

-- The exit strategy for the Capital Purchase Program

-- HAMP's "net present value test," which is used to determine whether borrowers are eligible for the program

The government's three TARP watchdogs testified before the Senate Finance Committee Wednesday and continued to criticize the government's  much-maligned mortgage modification program.

The complaints about the Home Affordable Modification Program came just a day after the Treasury Department released its latest statistics regarding its progress. Last month, the number of borrowers booted from the program was 40,000 higher than the number of borrower who were granted permanent modifications.

Elizabeth Warren, who chairs the Congressional Oversight Panel, said that homeowners needed a program with "far more urgency." She said that for every one family that has received a permanent modification, 10 have been put through the foreclosure process.

"This is a program that's just behind the curve," said Warren, who has previously grilled Treasury officials on the subject of HAMP during her panel's hearings. She suggested that loan servicers are dragging their feet on implementing the program because sometimes they stand to gain more from a foreclosure than a modification.

Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program, called Treasury's stated goal of wanting to offer 3 to 4 million modifications "meaningless." He said that unless Treasury "comes clean" and offers some serious goals and expectations of how many people will be helped by HAMP, taxpayers will conclude that the program is an "outright failure."

Barofsky also repeated findings from another report discussing inconsistent treatment of companies that were negotiating the re-purchase of the stock warrants they issued to the government in connection with their TARP aid.

Some were given more insight than other into what prices Treasury was willing to accept. He urged Treasury to be more transparent in that process.

"Transparency isn't just for transparency's sake," Barofsky said. "It makes programs better. It makes them more credible."

Warren reiterated her warning of a coming commercial real estate crisis for banks that have heavy concentrations in those fields, and she touched on problems that small banks may have in exiting TARP. Both were subjects of recent COP reports.

Barofsky repeated criticisms from his office's recent reports on auto dealership closures.

He said it was important that Treasury start acknowledging its mistakes. "Those are words we don't hear," Barofsky said. "We never hear any acknowledgment that they are fallible, that they are human."

The Treasury Department released the latest figures for its mortgage modification program Tuesday. And once again, it's more of the same: The program seems to be better at kicking borrowers out than keeping them in.

The number of homeowners removed from the $75 billion Home Affordable Modification Program last month far exceeded the number of homeowners who received permanent mortgage modifications.

Qualifying homeowners seeking modifications are initially placed into trial modifications that last several months. If their paperwork checks out and they make their payments on time, they can eventually receive permanent modifications that last for five years.

But in June, companies in the program cancelled 91,118 trial modifications, compared to the 51,205 trial modifications that were converted into permanent ones.

The total number of cancellations since the HAMP program's inception increased by 21.2 percent to 520,814, while conversions of trials to permanent modifications increased by 14.8 percent, to 398,021.

In a conference call with reporters, Treasury officials attributed those cancellations largely to borrowers who submitted incomplete documentation and missed payments during the trial period.

They said cancellations continue to be high because servicers are responding to a Treasury directive that they clear their backlogs of "aged" HAMP trial modifications that have been in limbo for at least six months. More than 60 percent of the cancellations were aged trials, according to the study.

Still, about 166,000 aged trials remain, with the majority of those attributed to two big services, Bank of America and JPMorgan Chase Bank. Servicers were supposed to have cleared their backlog of aged HAMP trials by the end of June, said Phyllis Caldwell, who leads Treasury's home preservation office.

Nearly half the homeowners booted from their HAMP trials received offers of non-governmental, proprietary modifications from their servicers, Treasury officials emphasized, and fewer than 10 percent of cancelled trial modifications have entered the foreclosure process.

But it's unclear how helpful those proprietary modifications will be in the long-term. While permanent modifications give borrowers an average savings of $510 per month, the government does not track what sort of savings borrowers can expect from non-HAMP modifications.

Critics of HAMP say servicers steer borrowers - desperate for any relief at all - into packages that aren't in their best interest.

Bank of America had the worst conversion rate among the largest mortgage servicers, turning just 23 percent of its HAMP trials into permanent modifications. Other major servicers -- including Wells Fargo Bank, JPMorgan Chase Bank, and CitiMortgage, for example - had conversion rates that hovered around the same level.

Ocwen Financial Corp. was the only servicer among the top 10 largest participants to convert the majority of its trials into permanent modifications. Its conversation rate was more than 60 percent.

The latest HAMP statistics will likely give more ammunition to the program's critics, such as the Congressional Oversight Panel, the Special Inspector General for the Troubled Asset Relief Program, the General Accounting Office, and the House Oversight Committee.

All have pointed out flaws in the program. The common criticisms include its inconsistent treatment of borrowers, a lack of clear consequences for servicers that don't comply with program requirements, and the absence of a clear barometer against which the program's success can be measured.

Those criticisms and others will likely come up Wednesday, when TARP special inspector general Neil Barofsky, COP Chair Elizabeth Warren, and Richard Hillman -- who heads the financial team at GAO -- testify before the Senate Finance Committee

Regulators closed six banks tonight  - including three in Florida - bringing the total number of closures this year to 96.

Unusually, three of the failed banks were acquired by a single institution, NAFH National Bank in Miami.

NAFH, led by former Bank of America executive, is a new entity created for the purpose of acquiring failed banks, according to the Jacksonville Business Journal.

The Federal Deposit Insurance Corp. arranged for NAFH to acquire all of the assets and deposits of Metro Bank of Dade County in Miami, Turnberry Bank in Aventura, Fla., and First National Bank of the South in Spartanburg, S.C. The three banks collectively operated 23 branches and will resume operations under their original names.

·       Metro Bank had assetsof $442.3 million and deposits of $391.3 million

·        Turnberry Bank had assets of $263.9 million and deposits of $196.9 million; 

·        First National Bank of the South had assets of $682.0 million and deposits of $610.1 million.

In the waning days of 2008, banks across the country faced a difficult decision: should they accept government aid that could help keep them solvent but also open them to criticism of being bailed out?

Eventually, more than 700 banks took the deal and accepted funds through the Troubled Asset Relief Program. But others - eager to protect their images or unwilling to accept the program's burdens - opted against taking the assistance.

For some, the choice ultimately turned out to be a good one, and they remained successful at a time when many banks struggled. But others have seen their financial condition slide since rebuffing the taxpayer money, and may be wishing they could go back in time.

Case in point: North Carolina's Bank of Asheville. Shortly after Congress created TARP, the bank's holding company wrote in a Securities and Exchange Commission filing that it didn't need the government's help.

Although the Treasury Department initially approved the bank's application for $5 million, company officials ultimately opted not to participate in TARP's Capital Purchase Program.

It's hard to blame them. At the time, the bank had earned the highest rating possible from independent banking analysts Bauer Financial. Bank of Asheville  noted in filings that its capital ratios were well-above what regulators required, and that its asset quality was beating the industry average.

The bank decided that its position was strong enough that accepting the government money was not worth it. Joining TARP "would not be in the best interest of company shareholders," the company wrote in its 2009 annual report.

Today, some shareholders may think otherwise.

The bank is just one step above Bauer's worst rating, earning a 1 on a 0 to 5 scale. After posting net operating income of $1.4 million in 2008, the five-branch bank finished 2009 with  a loss. Its most recent quarterly statement says that the economic downturn has affected businesses in the bank's market ranging from retail to real estate, and that it is working with customers who don't show signs of future cash flow to liquidate their collateral and initiate foreclosure.

Worst of all, its non-performing assets totaled $26.8 million - an exponential increase from the $2 million in non-performing assets it had during the same period a year earlier. Just last month, G. Gordon Greenwood, president and chief executive of the bank and the holding company, retired. Officials at Bank of Asheville did not respond to BailoutSleuth's request for comment.

And Bank of Asheville is not alone. BailoutSleuth discovered that many other banks that opted not to take TARP funds have seen their condition deteriorate.

Using SEC filings and other sources, BailoutSleuth identified 74 banks, affiliated with 61 holding companies, that chose not to accept TARP funds. The list is not exhaustive, as Treasury does not publicly release the name of banks that withdrew their TARP applications.

A quarter of the banks on BailoutSleuth's list saw their ratings decline after they rejected TARP funds. The figure is cause for concern because many of those banks were financially strong when they made that decision.

A total of 19 banks on the list have lower ratings now than they did on Sept. 30, 2008, just before Congress approved the $700 billion TARP initiative. Another 39 have seen no change, and 13 that rejected government aid actually saw their ratings improve. Three were startup banks that did not have ratings when TARP was created.

Bank of Asheville's experience was echoed by several others on the list, such as OptimumBank, a three-branch institution based in South Florida. On Jan. 20, 2009, the bank announced in a press release that it had received preliminary approval from Treasury for $4.6 million in TARP money. "(W)e, like other financial institutions, continue to face extremely challenging market conditions," said then-board chairman Albert Finch in a statement. "We expect to receive the TARP funds in the near future."

But just three days later, the bank retreated from that position and instead announced that it would decline the loan. "After careful consideration of all factors associated with receipt of TARP funds and the fact that the Company has capital well in excess of that required to be considered well-capitalized under banking regulations, we have decided to decline the TARP money," Finch said in that statement, offering no further explanation.

Now, 18 months later, the bank that rejected money because it was well-capitalized has been ordered by the FDIC to boost its capital. The Federal Reserve also took  enforcement action against the bank, and its rating has dropped from a 4 to the lowest-possible rating of 0.

After turning a profit in 2008, OptimumBank had net operating losses of $11.2 million in 2009 and $3 million in the first quarter of this year. Its  holding company is at risk of being delisted from the NASDAQ exchange. Finch resigned as chairman and CEO in late 2009.

The company attributes its woes largely to the suffering South Florida real estate market. Bank executives did not return BailoutSleuth's phone calls.

Legacy Banks, with 17 branches serving eastern New York and western Massachusetts bank, rejected a $20 million TARP investment in January 2009, in part because the company believed it wouldn't be in stockholders' best interest. Since then, the company's finances have deteriorated and it stock has fallen 13 percent, to $8.71 a share.

"We are confident in our ability to be able to serve the future borrowing needs of the communities we serve and to pursue our strategic plan and growth opportunities without the Program's capital infusion," Chief Executive J. Williar Dunlaevy said in a statement when the company rejected the TARP aid.

In April 2009, the bank justified the decision to eschew TARP by noting that it originated $41 million in loans in the first quarter of 2009 -- more than a third greater than the previous year, a statistic that "underscores why it would have been superfluous" to accept TARP capital."

But according to its most recent quarterly report, the bank's loan portfolio decreased by $51.3 million to $646.3 million in the first quarter of 2010, compared to the same period a year ago.

The bank's rating has dropped from 5 to 3.5, and after turning a profit in 2008, the bank had net operating losses of $6.4 million in 2009 and $1.2 million in the first quarter of 2010. Paul Bruce, the bank's chief financial officer, did not return messages from BailoutSleuth.

Some banks that rejected TARP maintained their success and others even improved following the decision.

The Bank of Clarke County, which has 11 branches in Virginia, boasts on its website that its business is "all about helping the customer . . . not costing the taxpayer," a barely-veiled criticism of its competitors that signed on to TARP. The bank's rating improved from a 4 to 5 after it rejected $10 million in TARP aid, and its 2010 first quarter net income of $1.6 million is up 66 percent compared to a year ago. At a time when banks are closing and selling off branches, Bank of Clarke County is opening a new branch this summer.

"We are a community bank with local shareholders and we don't believe that it is in their best interest to dilute their ownership and carry capital that we don't need," president and CEO John R. Milleson said when the bank rejected the funds." The company's capital ratios have actually improved since it rejected the government assistance.

German American Bancorp, with 29 Indiana branches, reported $3.5 million in net operating income in the first quarter of 2010 - a 19 percent increase over the first quarter of 2009. In March 2009, the bank announced that it had rejected $25 million in TARP funds for which it had received preliminary approval. The bank now has a 5 rating from Bauer, up from a 4 in the days before TARP.

"We continue to be very pleased with the strength of our earnings and the solid quality of our balance sheet, particularly our loan portfolio," said chairman and CEO Mark A. Schroeder in a statement highlighting the bank's prudent credit standards.

Beacon Federal also decided in December 2008 not to participate in TARP. The bank, with seven branches in Massachusetts, New York, Tennessee and Texas, reported net income of $1.3 million in the first quarter of 2010 - more than double its earnings a year earlier.

Two more banks that got taxpayer assistance through the Troubled Asset Relief Program have repaid the government, while a third raised more than $30 million in new capital through a stock offering.

Fulton Financial Corp., of Lancaster, Pa., repaid the $376.5 million it received through TARP's Capital Purchase Program in December 2008, while Green City Bancshares Inc., of Green City, Mo., retired its $651,000 obligation.

Meanwhile, HopFed Bancorp Inc., based in Hopkinsville, Ky., sold nearly 3.6 million shares of its common stock at $9 a share. A fourth TARP recipient, Central Virginia Bankshares Inc., is seeking to raise as much as $15 million through a stock offering of its own.

Neither HopFed nor Central Virginia Bankshares, however, disclosed any immediate plans to use the money to repay taxpayers.

Hopfed Bancorp, the parent company of Heritage Bank, got $18.4 million in TARP money in June 2009. It completed the sale of 3.33 million new shares last month, and announced Friday that its underwriter had exercised a portion of over-allotment option and bought 250,000 additional shares.

The sale to the underwriter brought the company an additional $2.14 million in net proceeds.

According to HopFed's June registration statement with the Securities and Exchange Commission, the offering was intended to increase the bank's capital, and to support the possible acquisition of all or part of other institutions. 

Hopfed mentioned the repurchase of the preferred stock it issued the Treasury Department in return for its TARP money as only a tertiary possibility, saying the offering would help position the bank for the "eventual redemption'' of those shares.

Both HopFed and Heritage Bank are operating under conditions outlined in two separate memoranda of understanding issued by the Office of Thrift Supervision on April 30, 2010.  With the exception of the dividends attached to the company's outstanding preferred stock  (including the TARP shares held by the Treasury),  neither institution is permitted to "pay dividends or make other capital distributions" without first procuring OTS approval.

The memoranda are also critical of the bank's commercial real estate portfolios, and require Heritage Bank and Hopfed to reduce what the OTS deemed to be excessive concentrations in that area.

Central Virginia Bankshares, based in Powhatan, Va., filed a registration statement with the SEC last month covering the sale of an undetermined number of shares. It set the maximum value of the offering at $15 million.

The company owns Central Virginia Bank, which got roughly $11.3 million in TARP aid in February 2009.

Central Virginia Bankshares, which has lost $18.8 million over the past two years, has bigger concerns that repaying its TARP money. It said in its registration statement that the parent company and the bank probably would become subject to stricter regulatory supervision by the end of the second quarter, because of its deteriorating finances and problems in its loan portfolio.

Indeed, it later announced that on June 30 it entered into a written agreement with the Federal Reserve and Virginia regulators that called for the company and the bank to submit plans for strengthening the bank's management and governance, improving its credit-risk management, boosting asset quality, addressing problem loans and maintaining sufficient capital.

Central Virginia Bankshares did point to its possible exit from TARP earlier this year, when it sought to amend its articles of incorporation to boost the number of authorized shares to 30 million, from 6 million. "We want to have the authorized shares available to issue additional shares in the future for other corporate purposes," it claimed, "including the possibility of paying off our TARP obligation."

That language, however, was conspicuously absent from the registration statement for the share sale.

The Securities and Exchange Commission announced today that Goldman Sachs & Co. will pay $550 million to settle charges that it misled investors in a package of subprime mortgage products.

The settlement is the largest ever paid by a Wall Street firm, according to the SEC.

As part of the settlement, Goldman also admitted that its marketing materials for the products - known as ABACUS 2007-AC1 - were incomplete.

The SEC has alleged that Goldman did not fully disclose key facts about synthetic collaterized debt obligations it marketed that were tied to the performance of subprime mortgage-backed securities.

Hedge fund Paulson & Co. Inc. played a role in selecting those securities and took a short position against the CDOs - a fact not disclosed to the investors.

Essentially, Goldman was marketing a product that was designed to fail. The deal wound up costing investors about $1 billion, and generated roughly the same amount in profits for Paulson.

"(I)t was a mistake for the Goldman marketing materials to state that the reference portfolio was 'selected by' ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors," the company said in its settlement. "Goldman regrets that the marketing materials did not contain that disclosure."

Officially, Goldman has not admitted or denied any of the allegations made by the SEC. As part of the settlement ,$250 million will be returned to investors, and $300 million will be paid to the U.S. Treasury.

Goldman also will review its internal controls pertaining to the marketing of similar products to ensure that future disclosures are "full, accurate and complete," said Robert Khuzami, the SEC's enforcement chief.

"This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing," Khuzami said. "Those principles do not change regardless of how complex the product or how sophisticated the investor."

Khuzami emphasized that the penalty is significantly higher than the $15 million Goldman made on the transaction. Lorin Reisner, deputy director of the SEC's enforcement division, said the penalty imposed against Goldman would be a "powerful deterrent" against future misconduct by Wall Street firms.

The settlement is subject to approval by Judge Barbara Jones of the U.S. District Court for the Southern District of New York. The settlement pertains only to the ABACUS deal and does not pertain to any other areas that may be investigated.

Fabrice Tourre, an executive at Goldman, continues to face charges from the SEC related to the same case. As part of the settlement, Goldman will assist the SEC in its case against Tourre, Reisner said.

The Senate voted 60-39 to pass financial reform legislation Thursday afternoon, launching the government's most sweeping changes to the financial sector in decades.

The legislation, which is more than a year in the making, emerged from conference committee and was passed by the House two weeks ago. It is expected to be signed into law by President Obama next week.

The legislation will outfit federal regulators with expanded authority designed to curb financial institutions' risky behavior. It also imposes new leverage, liquidity and capital requirements on financial institutions.

Democrats say the legislation will put an end to "too big to fail" by giving regulators the ability to wind down financial firms that pose a systemic risk to the economy.

The bill creates a consumer financial protection agency that will design and enforce rules pertaining to mortgages, credit cards and other products.  It also imposes further regulation regarding the trading of derivatives.

The legislation also immediately ends the Treasury Department's ability to spend further money on TARP. The move will likely not have a practical impact on the program, as Treasury Secretary Timothy Geithner recently said Treasury did not have plans to launch any new TARP programs.

For more details about what's included in the financial reform package, click here.

American International Group Inc. board chairman Harvey Golub resigned Wednesday due to differences with chief executive Robert  Benmosche, the company announced.

Golub was replaced by Robert S. "Steve" Miller, who was elected to the board a year ago. Miller is a turnaround specialist who helped restructure a number of large financially strapped companies, including Delphi Corporation .

He also is chairman of a private equity firm called MidOcean Partners.

In his letter of resignation, Golub said that Benmosche had informed the board that the working relationship between the two was "ineffective and unsustainable."

"Consequently, I'm resigning for the simple reason I believe it is easier to replace a chairman than a CEO," Golub wrote.

Golub was the chief executive of American Express Corp. from 1993 to 2001.

The bailout intended to help banks weather the financial storm could actually wind up drowning them, according to a new report from the government's TARP watchdog, the Congressional Oversight Panel

As part of the Troubled Asset Relief Program, the Treasury Department invested $205 billion in 707 banks. More than 80 percent of that funding went to 17 large banks, each of which has more than $100 billion in assets. Most of those banks have repaid the money.

But 690 small banks received $40 billion in assistance through TARP's Capital Purchase Program. Many of them are struggling to pay back that money and are failing to keep up with the quarterly dividends to Treasury that were a requirement for taking the cash.

The oversight panel is predicting those struggles will only worsen. The problem, the panel wrote, is that there isn't a clear path for small banks to exit TARP, and that the program has turned into a two tier system. Large banks used their Capital Purchase Program money for short-term cushions, but small banks are winding up with longer-term government investments that are "subject to market uncertainty, stigma, and pressure."

"After close examination, our panel concluded that the program served Wall Street much better than anyone else," said COP Chair Elizabeth Warren, in a video introducing the report.

So far, 76 percent of the large banks that received TARP aid have repaid their money, compared to less than 10 percent of the small banks. Treasury still has $25 billion in taxpayer dollars outstanding at the small banks.

Small banks - as opposed to big Wall Street institutions - will likely have difficulty paying back their TARP aid and leaving the program for several reasons. Small banks have a disproportionately high exposure to commercial real estate, which is expected to have heavy future losses. About 40 percent of the banks that received government investments through the Capital Purchase Program have high CRE concentrations, compare to 19 percent of non-CPP banks.

Meanwhile, about half the small banks still in the program are privately held and lack access to capital markets. Many of the publicly held banks are so small they lack ready access to investors. That will make it increasingly difficult for them to obtain the new capital needed to repay the government.

The panel noted that small banks also have a difficult or impossible time raising new money because investors don't view them as "too big to fail," as they do for the Wall Street banks.

The Federal Deposit Insurance Corp. now has a larger role in supervising the country's banks, following a Monday vote by its board of directors to enhance its backup authority.

The FDIC is one of five federal agencies that regulate banks, but because it administers the insurance fund that pays depositors when banks fail, it has "backup" authority over all banks.

Monday's vote expands that authority and is expected to improve the FDIC's access to information needed to evaluate the country's financial firms. It follows criticism that the FDIC lacked the authority to intervene when Washington Mutual was failing in 2008.

"While the FDIC has had backup authority for several years, and for the most part it has worked rather well, the past financial crisis provided us with a strong and sober reminder that the activities of large banks are often very complex and opaque," FDIC Chair Sheila Bair said in a statement. "The FDIC needs to have a more active on-site presence and greater direct access to information and bank personnel in order to fully evaluate the risks to the deposit insurance fund on an ongoing basis and to be prepared for all contingencies."

The new memorandum of understanding between the FDIC and other regulators gives the FDIC greater authority to regulate banks under certain circumstances, such as when they are deemed to have heightened risk, when they are defined as "large" under regulatory rules or when interconnected banks are defined as "systemic" by the pending financial reform legislation. The FDIC also announced that it will be able to expand its on-site staff as large and complex banks.

"The FDIC supports the role of the primary federal regulator and has no interest in infringing upon their authorities," Bair said. "However, the FDIC has needs that are separate and distinct from the primary federal regulator that must be met in order to satisfy our statutory responsibilities."

The previous agreement between the FDIC and its fellow regulators dates to 2002 and has been under severe criticism in recent months.

A study released in April by the inspectors general of the FDIC and the Treasury Department said that the FDIC was limited in its ability to make its own assessments about the failing Washington Mutual and instead was forced it to rely on the work of the bank's primary federal regulator, the Office of Thrift Supervision.

A hearing by the Senate Permanent Subcommittee on Investigations earlier this year portrayed OTS as a "feeble" regulator waging a turf war against the FDIC.

OTS limited the FDIC's access to Washington Mutual banking data and capped the number of FDIC workers allowed on-site at the bank.

John Dugan, the outgoing head of the Office of the Comptroller of the Currency, another federal banking regulator, expressed his support for the new agreement, although he cautioned that the FDIC should not undermine the work of other federal regulators. Dugan, who serves on the FDIC board, said the new rules seem to strike that balance appropriately.

"In our still somewhat confusing system of multiple regulators, it will be very important to work hard to carry out our respective responsibilities coordinating with each other, but not duplicating each other's work as 'shadow supervisors,'" Dugan said in a statement.

Financial regulators resumed their work after a quiet Fourth of July holiday weekend, closing down four banks nationwide, including the first in Oklahoma in nearly a year.

Friday night's closures bring the year's tally to 90.

The largest of the four failures was Home National Bank in Blackwell, Okla., which had $644.5 million in assets and $560.7 million in deposits.  Oklahoma's last bank failure was July 31, 2009.

Home National's 15 branches will reopen as branches of RCB Bank, based in Claremore, Okla. The Federal Deposit Insurance Corp. arranged that deal, which called for RCB to assumed all of the failed bank's deposits, and about $340 million of the assets. 

In a separate transaction, Enterprise Bank & Trust of Clayton, Mo. purchased $260.8 million of Home National's assets, with the FDIC retaining the remainder until they are sold.

The failed bank previously showed signs of trouble. In May, its holding company was issued an enforcement order by the Federal Reserve and told to develop a capital plan, among other provisions.

The bank lost $56.2 million last year but actually turned a profit in the first quarter of this year.

Friday's other failures include:

·        Ideal Federal Savings Bank in Baltimore. The single-branch bank had $6.3 million in total assets and $5.8 million in total deposits. The Baltimore Business Journal reported that the 90-year-old Ideal originally catered toward African-Americans at a time when other banks were unwilling to issue them loans. The Baltimore Sun labeled it one of the country's oldest black-owned businesses. The FDIC could not find a taker for its deposits and assets.

·        USA Bank, in Port Chester, N.Y. The single-branch bank had $193.3 million in total assets and $189.9 million in total deposits.  New Century Bank of Phoenixsville, Pa., which does business as Customer 1st Bank, took over the assets and deposits.

The FDIC said the four closings would cost its insurance fund an estimated $159.9 million.

Discover Financial Services announced that it has bought back its warrants from the Treasury Department for $172 million, completing its exit from the Troubled Asset Relief Program and avoiding an auction of the securities.

Discover got $1.2 billion in aid from the federal government in March 2009 as part of TARP's Capital Purchase Program. It repaid the funds in April of this year.

In the notes of a new SEC filing, the company said that it completed its dealings with the Treasury on Wednesday, buying back 20,500,413 warrants to buy shares of common stock. The warrants were exercisable at $8.96 per share.

Treasury obtained the warrants as a condition of the company's participation in TARP. Discover's stock was trading at $14.61 per share Thursday morning.

Linus Wilson, a finance professor at the University of Louisiana-Lafayette who analyzes warrant purchases, said the transaction is a good deal for taxpayers. He estimated that the warrants are worth about $156 million.

The Treasury Department announced Thursday it had completed the sale of 1.1 billion shares of Citigroup Inc. common stock as part of the second round of its divestment plan.

Treasury received 7.7 billion shares of Citigroup common stock, amounting to a 27 percent ownership stake in the company, in exchange for infusing the company with capital through the Troubled Asset Relief Program and offering additional credit guarantees.

Officials have decided to liquidate those holdings in waves, rather than dropping them all on the market at once, which could depress Citigroup's share price and reduce taxpayers' returns.

Treasury launched its initial round of stock sales in May, and to date it has sold 2.6 billion shares at an average price of $4.03 per share, collecting $10.5 billion in proceeds.

On Oct. 28, 2008, Treasury invested $25 billion in Citigroup through TARP's Capital Purchase Program. Less than a month later, it announced that Citigroup would get an additional $20 billion, plus more than $300 billion of loan guarantees, following the results of the institution's stress test.

Last year, $25 billion of that assistance was converted from preferred stock to common stock, giving the government an ownership stake in Citigroup.

Treasury currently owns 5.1 billion shares of Citigroup common stock and will continue to sell them in additional periods this year.

A day after pledging to be more forthcoming, executives at Goldman Sachs Group Inc. said they couldn't provide a government panel with information that other financial firms already did: their earnings from derivatives.

Members of the Financial Crisis Inquiry Commission sought the data as part of their investigation into the role that derivatives played in the country's economic meltdown. David Viniar, Goldman's chief financial officer, said he had no idea what the company's profits from derivatives were and claimed that it couldn't be easily calculated.

"We don't have a separate derivatives business," Viniar said. "It's integrated into the rest of our businesses."

Viniar's explanation didn't cut it for some members of commission, including Brooksley Born, former head of the Commodity Futures Trading Commission. She said Goldman shouldn't be surprised by the request - the commission has been seeking the information for six months - and she wondered whether Goldman had an incentive to keep the figure under wraps.

Last month, the FCIC issued a subpoena to Goldman Sachs as the commission sought more information about the firm's synthetic and hybrid collaterized debt obligations based on mortgage-backed securities. Gary Cohn, Goldman's president and chief operating officer, pledged on the first day of this week's FCIC hearings that the company would be more forthcoming in the future.

The panel also urged Viniar to reveal the name of an anonymous source at Goldman Sachs who said in a recent McClatchy news story that the firm made its own bets against the housing market with American International Group Inc. and was not exclusively representing its clients' demands. The story was significant because it contradicts previous statements from the company.

Viniar denied that he was the source and said he didn't know who it was. Members of the FCIC, which has subpoena power, said they want to interview the source and may force the company to reveal who it is.

Goldman officials also defended the company, which infamously received 100 cents on the dollar through its wagers with AIG after the insurer was bailed out. They reiterated that the government made little to no effort to persuade it to take a haircut.

"You were 100 percent recompensed," Born told Viniar. "The only people who were out money was the American public."

Viniar said the company had adequately hedged itself in the event that AIG folded. Those policies didn't pay out since the U.S. saved AIG and made the full payments itself.

Goldman also defended its collateral calls against AIG and insisted they weren't seeking to take advantage of the company. "We were firmly of the belief that the marks should represent as accurately as possible the market prices for these transactions based on our experience, expertise, and the market information available to us," said David Lehman, managing director of Goldman, in written testimony.

"Throughout the collateral dispute, we continued the process of pricing our positions and demanding collateral from AIG consistent with that pricing," he added. "AIG continued to dispute our marks, but for almost 6 months, AIG refused to provide Goldman Sachs with its marks on these same positions."

AIG has disputed that the situation was so simple. "By the fall of 2007, there was no longer an existing market, much less a liquid market, for the instruments we were trying to price," said Andrew Forster, former chief financial officer of AIG Financial Services, in written testimony.

Regulators also testified that they were largely hamstrung when it came to regulating aspects of AIG's business. "We as an agency were like a fly on an elephant," said FCIC chair Phil Angelides, reading a statement by John Reich, former director of the Office of Thrift Supervision.

Reich did not appear at the hearing and was issued a subpoena requesting his appearance but was not served because he was out of the country.