Did you realize that your screen name was changed to “Dr. Mumbai”?
The bank might find it is being investigated under the “equal opportunity lending” laws.
The bank could find itself under investigation under the Community Development laws.
The bank could be subjected to endless audits.
If regulators decide to run a financial firm out of business, they can darn sure do so, in very short order.
The threat was that the banks would face audits that would cost millions to comply, even if the banks were found innocent of any irregularities. The $$ and bad PR would have destroyed them. A very credible threat that amounts to extortion if it can be proven.
Chuck Schumer would add them to his "I killed a bank today" trophy case. A bank doesn't last long when elected officials and regulators start dropping hints that it unstable and unlikely to last the week. They could be completely stable but still be brought down by a run.
Actually, given that the banks were operating in multiple states, the Fed might have been in violation of its own RICO laws.
As I reported here last fall, I have a connection in a bank whose CEO was called by Paulson and informed that he MUST take the TARP loan.
The CEO discussed Paulson’s demand with others at the bank, and then called Paulson back, and said, “Of course. We’d just LOVE to take it.”
There was really no choice, so might as well make the best of it.
No one had the guts to stand up to nothing more than a bureaucrat.