U.S. Rep. Steven C. LaTourette (R-OH) today demanded that Treasury Secretary Henry Paulson reconsider the decision to deny National City Bank any funding from the bailout, and asked that National City be given its share of bailout funding that was steered to PNC.

 LaTourette, who twice voted against the $700 billion bailout and raised concerns of how it would be administered, angrily blasted Paulson for allowing Comptroller of the Currency John Dugan to decide National City’s fate when the bailout law does not provide any authority to the Comptroller.  LaTourette said the law gives authority to Paulson alone and only mentions the Comptroller’s office once in the 300-plus page law.  Under the law, the Treasury Secretary is told to “consult” with the Comptroller.

 LaTourette pointed out that National City is the only bank among the nation’s 25 largest to be denied funding, and its buyer, PNC, is the only one getting government funds to buy a bank.  PNC is slated to get $7.7 billion from the Troubled Asset Relief Program (TARP), including National City’s share of funding.

 LaTourette said between the nearly $8 billion subsidy from the government and a new $5 billion tax break, PNC is effectively getting National City for “free.”

 “This Civil War-era bank survived the Great Depression yet it couldn’t survive eight weeks of your bailout!” LaTourette said.

 Paulson refused to discuss the particulars of National City’s financial health or how the deal unfolded.  Paulson said the TARP program was designed for “healthy banks” and is “not to be used to prop up failing banks or banks that might fail.”

 “In my experience I have seen institutions that meet capital ratios but the market loses confidence in them,” Paulson said, adding he was speaking generally and not of National City’s situation.

 LaTourette argued that if the market lost confidence in National City it was because of the Comptroller’s decision to deny bailout funding to it – a decision that is widely perceived as meaning a bank is “not a survivor.” LaTourette said the bank’s directors were forced into a merger at a fire sale price.

 Paulson said his office does not make decisions on TARP participation and instead approves applications based on recommendations from regulators, such as the Comptroller of the Currency.  In a heated exchange, LaTourette told the Secretary that his explanation contradicts what the Comptroller’s office has said.

 LaTourette said he has an October 28 letter from Currency Comptroller John Dugan that says Treasury makes final decisions, not his office.  The letter states: “in terms of eligibility for capital investments under the TARP program, the Department of Treasury establishes the criteria and makes final decisions about which institutions receive capital.”

 Paulson defended the use of TARP funding for bank acquisitions, saying that banks that are in “distress” can be acquired by a “well capitalized bank.”  LaTourette pointed out that National City’s Tier 1 Capital, the general gauge of a bank’s ability to cover loan losses, was 11 percent while PNC’s was 8.2 percent.  The Feds consider a bank well capitalized at 6 percent, and any bank at 4 percent is considered failing.

 LaTourette demanded that Paulson reconsider the decision to deny National City almost $4 billion on TARP funding.   Paulson argued that he’s never seen an application from National City and didn’t make the decision, but LaTourette screamed it was because the Comptroller “told the CEO not to file an application!”

 LaTourette again pressed Paulson to review the National City deal and John Dugan’s involvement.  Paulson defended Dugan, but said he would take it up.

 “I’m very happy to discuss it with him,” Paulson said.

 LaTourette said afterward that he was “not at all satisfied” by Paulson’s responses and will seek a meeting with the President. 

 LaTourette also announced that Paulson’s office yesterday responded to a sweeping public records request he made on October 30 regarding the National City-PNC deal.  LaTourette asked for all records by November 10th, but Treasury said yesterday it does not have records and cannot compel the Comptroller of the Currency to turn them over. The letter further stated that Treasury was “unable to locate records reflecting an application by National City Bank for funding.”

  At the start of the hearing, LaTourette submitted a detailed statement to the Committee outlining his concerns about the TARP program as it relates to National City Bank.  The statement is posted at www.house.gov/latourette.