U.S. Cut Funds Before N.Y. Bank Failed

Government deposits were used to help the failing Bank of New England, while deposit cuts at a troubled Harlem-based bank may have contributed to its failure, according to a published report.

In March, the Treasury Department stopped its practice of keeping as much as $300 million of income-tax withholding payments at Freedom National Bank, the New York Times reported Tuesday.

Meanwhile, Treasury officials agreed to help shore up the Boston-based Bank of New England by depositing large amounts of the tax-withholding funds, known in financial circles as “tax and loan” accounts, the Times said.

Both banks have since failed.

“The loss of the tax and loan revenue almost doubled our losses,” said George A. Russell Jr., who was Freedom National’s president.

Freedom National was the nation’s fourth-largest black-owned bank, but its assets were only a fraction of those of the Bank of New England.

It wasn’t the first time the treatment of the two banks by federal regulators has been questioned.

The Bank of New England was seized by federal regulators on Jan. 6, and the Federal Deposit Insurance Corp. guaranteed all deposits, including those exceeding the $100,000 legal limit for insured deposits.

But depositors at Freedom National with accounts over $100,000--including organizations caring for poor children in Harlem--were not fully reimbursed after the bank failed Nov. 9.

Freedom National had $100 million in assets, while the Bank of New England had $15 billion.