US Asked To Bailout Foreign Bank

September 3, 2010 – In an audacious request, a major shareholder of Afghanistan’s largest bank is asking the United States to provide funds to prevent the collapse of the Kabul Bank.  According to the Wall Street Journal, a run on the Kabul Bank has brought the bank to the brink of insolvency.

KABUL—A top shareholder in Afghanistan’s largest bank called on the U.S. to shore up the lender after depositors withdrew about a third of its cash reserves in two days, while the country sought to avert a destabilizing crisis at a crucial moment in the fight against the Taliban.

Mahmood Karzai, brother of Afghanistan’s president and the third-largest shareholder in Kabul Bank, urged the U.S. to calm the situation, saying the lender could keep up with the pace of withdrawals for only a few more days.

“America could support Kabul Bank to the last penny, of course that would help,” he said in an interview at his Kabul home. “The full faith and credit of the U.S. government behind Kabul Bank—what more do you want?”

If the withdrawals continue apace, Mr. Karzai said, the bank would be effectively insolvent by early next week. The bank has $1.3 billion in deposits, and its total assets are almost equal to its liabilities. But the lender only had $500 million in cash on hand at the start of the crisis, he said. Its other assets—including Dubai real estate investments of uncertain value—aren’t easily convertible into cash.

Kabul Bank’s woes became public late Tuesday when word emerged that Afghanistan’s central bank had quietly forced out the bank’s two top executives, and its biggest shareholders, amid allegations that they made hundreds of millions of dollars in often-clandestine loans to themselves and Afghan government insiders.

Some U.S. officials expressed doubt that the Afghan government could bear the strain of propping up Kabul Bank without outside help.

Mr. Karzai’s request for the “full faith and credit” backing of Kabul Bank by the US Government was reportedly declined by the U.S.  With U.S. taxpayers still extremely irate over the cost of bailing out the U.S. banking system, it would have been political suicide for Congress to even consider such a request.

With 118 banking failures to date and 829 banks on the Problem Bank List, the United States is financially stressed trying to resolve its own banking crisis.   The shareholders of Kabul Bank will rightfully have to solve their own banking problems.