WASHINGTON - Career Federal Deposit Insurance Corp. employees are angrily describing a policy change adopted last month as a coup d'etat by the Clinton administration's Treasury Department. Some members of Congress are up in arms as well.
The reason? These critics say the independent agency was effectively stripped of its most prized authority - the right to examine any bank or thrift at any time.
Under the policy shift, FDIC examiners must now get permission from the agency's Treasury-controlled board before going into any institution the FDIC does not directly supervise. That includes national banks, thrifts, and state banks that belong to the Federal Reserve.
Treasury Controls Board
The measure was floated as a way to curb duplicative exams, and there is no doubt the FDIC board is within its legal rights to require its staff to get approval before going into banks and thrifts primarily supervised by other agencies.
But critics insist that the FDIC's backup supervision will be chilled because two of the three FDIC board seats now filled are held by the primary regulators for national banks and thrifts.
"What examiner is going to figure that he'll get the go-ahead from a board with two of three votes controlled by the agencies that he is trying to go after," said Joe Hull, a review examiner in FDIC's San Francisco office.
The FDIC staffers believe the change would not have occurred if the FDIC had a full, five-member board. Currently, there are two vacancies. The board now consists of Comptroller Eugene A. Ludwig and two lame ducks: acting FDIC Chairman Andrew C. "Skip" Hove and Jonathan Fiechter, acting director of the Office of Thrift Supervision. Mr. Ludwig and Mr. Fiechter work for Treasury.
An Unpleasant Surprise
At the Sept. 19 open board meeting, Mr. Ludwig surprised the FDIC's senior staff by proposing to curb the FDIC's power to use its backup examination authority. Mr. Ludwig argued that the FDIC's "willy-nilly" use of its backup exams is an unnecessary duplication of the primary regulators' efforts. Some bankers who have gone through joint agency exams agree.
But some saw it as a power struggle, with the Comptroller's office gaining at the FDIC's expense. "It was the most bare-knuckled display of turf grabbing I've ever seen," said Bert Ely, president of Ely & Associates, an Arlington, Va.-based consulting company.
For his part, Mr. Ludwig says it is the board's duty to make the FDIC staff justify why it should examine particular institutions.
"What the board is doing is what they are asking boards of directors of banks to do: to get more involved in how the resources of the agency are used," said Comptroller's office spokeswoman Lee Cross. "That's what the law says they should do."
Loss of Independence Denied
Mr. Hove, who hopes to be reappointed to the board, also believes the FDIC has not given up anything. "It doesn't mean we've lost our independence," Mr. Hove said in an interview. "It simply means that we're going to be team players and we're going to do what ... the President would like to do" - a reference to Mr. Clinton's desire for a reduction in regulatory red tape.
But the FDIC's reputation was built in recent years on going its own way - not playing with the team.
In fact, Congress entrusted savings and loan supervision to the FDIC when it passed the 1989 bailout bill because it wanted a more objective eye scanning thrift balance sheets. In the Federal Deposit Insurance Corporation Improvement Act of 1991, Congress decided to expand the FDIC's reach to include national banks and state member banks.
The lesson Congress learned from the thrift industry's collapse was that the, agency that charters an institution often ends up coddling it.
Gonzalez Plans Probe
The lawmaker who has taken the most interest in this issue, House Banking Committee Chairman Henry B. Gonzalez, D-Tex., plans to investigate the effects of the FDIC's decision.
"Attempts by the regulators to circumvent congressional intent in this matter will not be tolerated," he said Tuesday.
Rep. Gonzalez, with Rep. Jim Leach, R-Iowa, the committee's ranking Republican, warned Mr. Hove in an Aug. 19 letter against "enter[ing] into any arrangement with other regulatory agencies which would derogate this [backup] authority."
To Cite HomeFed Case
A banking committee spokesman said Mr. Gonzalez plans to use the FDIC's work at Homefed as an illustration of why Congress gave the FDIC the authority to look over the primary regulators' shoulders.
Homefed, which failed in July 1992, did not have a full-scale exam by thrift regulators from 1986 to 1990. When FDIC examiners accompanied the OTS into Homefed in December 1990, it had the thrift regulator's second-best performance rating. By the time FDIC left, the California thrift was downgraded to the worst rating. The OTS was furious, but history has proven the FDIC had a better fix on the institution's problems.
|A Little More Selective'
The change is already having an effect.
Stanley J. Poling, the FDIC's director of supervision, said Tuesday that he has trimmed the number of backup exams the FDIC will ask to do in the fourth quarter.
"It's partially due to things improving and it's partially due to being a little more selective," he said. "We are going into institutions we absolutely feel we have to get in."
Working from a List
In the past, the three other regulators gave the FDIC a list of institutions they planned to examine each quarter. The FDIC selected which institutions it also wanted to examine. The agencies then scheduled joint exams.
In 1992, the FDIC went into 229 national banks, 72 state member banks, and 705 thrifts. That is 11.8% of the 2,713 safety and soundness exams done last year by the Comptroller's office, 11% of the Fed's 815 exams, and 34% of the OTS' 2,074 exams. In nearly every case, the FDIC piggybacked the primary regulator so the institution went through just one exam but saw more examiners than normal.
Looking for Signs of Trouble
The duplication problem Mr. Ludwig is trying to fix is tied more to the number of different types of exams each bank or thrift gets. For example, a bank may be examined for safety and soundness in June and compliance in September.
Only about half the banks and thrifts the FDIC selected to examine in 1992 had the worst two performance ratings, Camel 4 or 5, but FDIC officials said they go into Camel 3-rated banks and thrifts in an attempt to uncover problems before they threaten the institution's existence.