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Fed concerned about possible improper gov’t influence on TBAS

So, It’s holding up issuing the routing number

Territorial Bank of American Samoa has already made additional submissions to the federal regulator to confirm that there is no government or political influence on decisions by the bank, which as of last Friday morning was still awaiting approval of its transit routing number from the Federal Reserve, according to TBAS official and board members in testimonies to a Senate panel.

A seven-member board of directors, who are appointed by the governor and confirmed by the Fono, governs TBAS. And during a House committee hearing about two weeks ago, TBAS chief executive officer Philip Ware told lawmakers that he suspects that the Federal Reserve is concerned with government’s involvement in the bank as the reason for the delay of getting a routing number.

The Senate Budget and Appropriations Committee raised the routing number issue during a hearing late last week, where TBAS board member Keniseli Lafaele confirmed for senators a meeting in February this year by the governor and the Federal Reserve in Washington D.C. and that the federal regulator had requested additional information for submissions, which has been done.

Pressed by Sen. Tuaolo Manaia Fruean for more details regarding the submissions, Lafaele said the Federal Reserve wants tomore about the composition of the bank’s board, as there is a concern of the government having too much control over TBAS on a daily basis, which operates independently from the government.

According to Lafaele, who is also the Commerce Department director, the Federal Reserve wants confirmation that the government has no control or interference in the bank’s daily operations; and this is the latest information submission.

Another board member, Steven Watson added, “What they’re asking for, in addition to what was provided originally, is they want to know what safeguards… what we’re doing to keep the government influence out of the bank.” He also said that they were not aware that the Federal Reserve needed such information.

Responding to the committee’s questions, Ware said the February meeting “was very positive and they [Federal Reserve] were very encouraging.”

“They want to do this for us,” he said referring to the routing number and “they’re trying to find a way. If they want to approve us, there is a lot of evidence there to approve us for. If they want to deny us there’s a lot of evidence to deny.”

No one asked and Ware didn’t elaborate on evidence to approve or deny a routing number.

Ware also said that TBAS is working very hard to address all questions and give the Federal Reserve “everything they need so they are satisfied to give us an account so we can have a transit routing number.”

Committee chairman, Sen. Magalei Logovi’i asked as to the specific government involvement that the Federal Reserve is concerned with — “direct or indirect”.

Watson said it appears that because the bank is owned by the government, coupled with the fact that the governor nominates TBAS board members, who are then confirmed by the Fono, the Federal Reserve’s “concern is about whether or not the government is going to improperly influence the board of directors to do, for example, loans they should not make.”

“That’s what breaks a bank is bad loaning and making loans you shouldn’t make is the worst thing you can do,” said Watson, who was involved in the banking industry for many years in a legal capacity and is currently the Governor’s Legal Counsel. He is a member of TBAS board because of his banking background.

“And what my position has been — with direct and in direct communication [with the feds] that I had — is that as board of directors, we’re not accountable to the governor or to the Fono,” Watson said. “We’re accountable to the people of American Samoa. We do our decision making, [for] the people of the territory, not the politicians” who nominated and confirmed the board.

“And that is how we maintain our independence from the political process,” said Watson, who also revealed to senators that this is also concern of the Federal Deposit Insurance Corporation (FDIC), “are we independent from the political process?” (TBAS is not FDIC insured, which is something it says they will seek later down the line.)

Watson said that the board is responsible for governance, while TBAS management is responsible for day-to-day operations of the bank.

So to put it simply said Magalei, no one from the Legislature can come to a “board member to push for a loan even though the bank’s decision is that that person is not qualified for that loan? This is a simple example. Is this true?”

Watson replied, “Yes, that’s what we want to avoid. Absolutely.”

At the outset of the nearly one-hour hearing, Tuaolo voiced his disappointment towards Ware, whom Tuaolo says had promised his wife last December that the bank would get a routing number in two or three weeks. “You always do that,” said Tuaolo, regarding Ware’s promise of the routing number. “But nothing happened. Don’t promise if you’re not sure.”

Ware was very apologetic not only to Tuaolo but the Senate committee saying, “I’m very sorry. This has been a very difficult process.” Ware had in the past worked with two off island banks to get their routing number, which took less than two weeks.

“This one (TBAS), is going on a year now and it’s ridiculous. I apologize if I promised anything. I try not to promise anything, ‘cause this is a very tough process and I’m very careful not to promise, what I’m doing with the federal government,” he said. “We’re handicapped without a routing number.”

Sen. Misaalefua J. Hudson says all these questions would be avoided if “you can tell us exactly when the bank will get a routing number,” and Ware replied, “That always gets me in trouble. If I didn’t think there was hope for us to get one, I would tell you that.”

Without a routing number, TBAS cannot expand more products, although it has started offering loan products such as the Christmas loan program late last year, said Ware, who also revealed that the highest secured loan amount made recently by the bank was $12,000.

As to how the bank disburses the loan amount, Ware said most customers ask for cash, but “we can directly deposit it into your account.”