SACRAMENTO — Community Business Bank in West Sacramento has weathered the financial crisis with a swagger that competitors might envy. It recently announced plans to increase lending and perhaps buy a bank hammered by the economic downturn.
The small lender can ponder such moves in a dismal economy because it reinforced its capital with about $4 million from the Troubled Asset Relief Program, known as TARP. The deal seems to show the federal bailout at its best — priming the economic pump in a distressed region.
Beneath the surface, Community Business Bank demonstrates flaws in the federal program: TARP props up small banks with risky practices, few strings attached. Rather than enforcing prudence, TARP underwrites business as usual.
A Sacramento Bee investigation of internal shareholder documents and public lending records found that at Community Business Bank, those likely to benefit most from the taxpayer-funded windfall are a small group of insiders and their associates. From its inception 3 1/2 years ago, the bank has steered many of its assets to a handful of directors, as well as their relatives and business partners.
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