The investigation into why Oakbrook Terrace-based Superior Bank failed has widened, following a request by the chairman of the Senate Banking Committee to put the heat on everyone from bank officials to federal regulators.

Sen. Paul Sarbanes (D-Md.) this week asked for investigations into everything from what went wrong to who's at fault, and whether regulators missed something they should have seen. He sent letters to the General Accounting Office, which conducts investigations for Congress, and the inspectors general of the Treasury Department and the Federal Deposit Insurance Corp.

Superior Bank, half-owned by the wealthy Pritzker family, was shut down by the FDIC Friday after a bailout plan by the Pritzkers, who own the Hyatt Hotel chain, and their partner, New York real estate developer Alvin Dworman, fell through. The bank failed because it had lost nearly all of its more than $2 billion of assets on bad loans to high-risk borrowers, federal regulators said.

The FDIC reopened the bank Monday as Superior Federal and is seeking a buyer and a new CEO.

Superior's failure could cost the FDIC $500 million or more--some observers now are pegging the loss at closer to $1 billion, one of the largest bank failures ever.

"Given the role of the FDIC in promoting and preserving public confidence in our financial depository institutions, I request that you review why the failure of Superior Bank resulted in such a significant loss to the deposit insurance fund and make recommend- ations for preventing any such loss in the future," Sarbanes wrote in an Aug. 1 letter to the inspector general at the FDIC.

The FDIC, as part of its procedure for handling bank failures, has sent a team of investigators to figure out what went wrong and determine if there are people or institutions that should be sued or criminally prosecuted. By bringing in the inspector general of the FDIC, which has its own set of investigators, the inquiry would be broadened to external matters that led up to the failure, said FDIC spokesman David Barr.

In his letter to the FDIC and the Treasury, Sarbanes asked the agencies to look at how much regulators relied on the accounting information provided by the bank's accounting firm, Ernst & Young; how closely regulators monitored the bank's high-risk lending activities; whether they detected problems like fraud early on and what, if anything, they did about them, and whether there was a "lack of coordination or communication" between the Office of Thrift Supervision and the FDIC.

"The magnitude of this loss in this case raises questions about the effectiveness and the implementation of the [Federal Deposit Insurance Corporation Improvement Act of 1991] by the financial regulators and warrants an examination by your agency,'' Sarbanes wrote to the General Accounting Office. That law created new rules on how banks are examined and how much reserve capital they must have on hand, as well as regulations on how to clean up failed financial institutions.

He also asked for a broader look at how the nation's bank regulatory process is working and to "see whether similar issues have been raised in other institutions and whether and how the regulatory early warning system is working."

A spokeswoman for FDIC Inspector General Gaston Gianni said her office had received the letter and is reviewing it to determine how to proceed.

A spokesman for the Pritzker family could not be reached.

Chicago Sun-Times

-- Anonymous, August 05, 2001