Chicago fed didn't rein in speculative loans, inspector says

The Federal Reserve Bank of Chicago failed to halt speculative real estate lending that led to losses at banks in Indiana and Michigan that were later closed, the central bank's inspector general said.

Chicago Fed supervisors "missed" opportunities to take "stronger supervisory actions" at Irwin Union Bank in Indiana, which had excessive concentration in commercial real estate, Inspector General Elizabeth Coleman said in a report. Earlier action could have reduced the cost of the eventual failure at Warren Bank in Michigan, Coleman said in another report. Both banks were closed last year.

The findings, dated April 29 and posted on the Fed's Web site, follow similar criticism last year of supervisory flaws at the Atlanta Fed.

Senate Banking Committee Chairman Christopher Dodd wants to narrow the Fed's supervisory authority to bank holding companies with more than $50 billion in assets. The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, part of the Treasury Department, would regulate other banks.