Politics not behind Chicago bank seizure--watchdog

* IG finds no political motives in Broadway Bank closing

* Republican Rep. Issa had asked FDIC for probe

* Closing has become part of U.S. Senate election contest

By Dave Clarke

WASHINGTON, Aug 24 (Reuters) - There is no evidence that politics played a role in the government seizure of a Chicago bank owned by the family of the Democratic nominee running for the U.S. Senate seat once held by President Barack Obama, a government watchdog said this week.

On April 23, bank regulators seized Broadway Bank, a community bank with $1.2 billion in assets, and the Federal Deposit Insurance Corp arranged for MB Financial Inc (MBFI.O) to assume its deposits.

The move then became embroiled in this year's campaign season because the bank was owned by the family of Alexi Giannoulias, the first-term Illinois state treasurer and the Democratic nominee in this year's U.S. Senate race.

In May, the ranking Republican member of the House Oversight Committee, Darrell Issa, raised questions about whether Giannoulias' candidacy led bank regulators to wait longer than it should have to seize the bank in order to potentially shield him from political embarrassment.

Republicans have condemned Giannoulias' role in the bank's shoddy real estate portfolio that included loans to such figures as convicted prostitution ring operator Michael "Jaws" Giorango. Loans were also made to convicted influence peddler Antoin "Tony" Rezko, who also was a fund-raiser for Obama.

A report released by the FDIC's inspector general, an independent office in the agency, said it found no evidence of any political mischief.

"We did not see any evidence that the examination or enforcement action were delayed for political reasons or that the timeliness of the examination or enforcement action impacted Broadway's closing date," the office said in its report.

"Instead, we concluded that delays in processing the examination and issuing the enforcement action resulted from the complexity and condition of Broadway, the increased regulatory workload from the rise in bank failures and the need for coordination between the FDIC and" state bank regulators.

To make this determination the inspector general's office said it conducted interviews with top FDIC officials and reviewed emails, calendars and phone records to look for evidence of pressure being put on the agency by the Obama administration or congressional officials.

Giannoulias worked for the bank until leaving in 2006 to become state treasurer and Republicans have sought to make an issue out of both Broadway's failure as well as whom the bank did business with.

Giannoulias' opponent -- five-term Republican congressman Mark Kirk -- has attacked him for extending loans to convicted mobsters.

The two candidates are in a dead heat in the race, according to polls. (Reporting by Dave Clarke; editing by Andre Grenon)