Bank headache for Clinton

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WASHINGTON - The Justice Department has stepped up its investigation into the 1980s collapse of an Arkansas savings and loan (S & L) bank whose dealings involve Bill and Hillary Clinton, as well as several of their associates and prominent figures in the state when Mr Clinton was governor, writes Rupert Cornwell.

In the latest development, the Little Rock federal prosecutor who was handling the investigation has taken herself off the case, claiming that as a Clinton administration appointee she might be accused of bias. To replace her, the department has despatched a three-man team from Washington, headed by a senior attorney in its fraud division.

On Capitol Hill Henry Gonzales, the Texas Democrat who leads the House Banking Committee, this week agreed to a Republican request for a preliminary inquiry into the dollars 50m ( pounds 33m) failure of Madison Guaranty, the S & L at the heart of the investigation.

At issue is whether the Clintons may have received improper funding from Madison, headed by Bill Clinton's old friend James McDougal, to help finance gubernatorial campaigns during the 1980s. They are also linked through a real estate company jointly owned by the Clintons and Mr McDougal at the time. Thus far the case has shed light mainly on the intricate 'old boy' network by which Arkansas politics has traditionally been run. The White House steadfastly denies any wrongdoing, claiming the Madison case was aired and disposed of during the 1992 presidential campaign. But its resurrection now is an embarrassment for Mr Clinton.

Matters have been complicated by the claims of a former Arkansas judge and associate of the Clintons, now under indictment for fraud, that, urged to do so by Mr Clinton, he made a dollars 300,000 loan to the McDougal family.