WASHINGTON John Reich, the newest member of the Federal Deposit Insurance Corp. board, apparently has not gotten the memo about keeping a low profile.
But in an interview last week after two months as a member of a board that prides itself on reticence and caution, the former Florida community banker scolded his new colleagues and his former industry peers.
He rejected as unrealistic the idea of doubling deposit insurance coverage, slammed federal regulators for what he called poorly crafted guidelines on subprime lending, and warned industry advocates eager for deposit insurance reform that they will have to work harder to persuade Congress to take up the issue.
Mr. Reich, 61, is not just another former banker turned regulator. He worked on Capitol Hill for 11 years, most recently as chief of staff for Sen. Connie Mack, who retired last year.
His resume gives him a unique view on the issues, including one of the most controversial indexing the coverage level for inflation from 1980, which would raise it to almost $200,000 per account. He predicted the proposal will not fly, and said he already has a compromise in mind.
It is a nonstarter, he said. I think everybody realizes that. Politically, the logical point to begin indexing would be from the current time.
While indexing the coverage amount for inflation from this year might be politically viable, it would not be the kind of dramatic increase industry groups have been pushing for to help ease the funding concerns at community banks. Mr. Reich said he is sympathetic to their concerns, but he knows how politics factors into the policymaking equation.
Having worked on the Hill, I also understand the other side of that argument, that a substantial increase in coverage would not come without both economic costs in the form of additional premiums and political costs in the form of probably greater oversight and perhaps additional regulation, Mr. Reich said. It is a fine line, and ultimately bankers will have to determine if they are willing to pay the price.
But if he stands against many industry advocates who want higher coverage, Mr. Reich is firmly on their side when it comes to the subprime guidelines issued by the banking and thrift regulators in January.
The guidelines, in which regulators made an initial attempt to define subprime lending and told banks to hold more capital for programs that target subprime borrowers, have met a firestorm of criticism from industry groups. They say the definition is too broad and the guidelines would be counterproductive.
Mr. Reich said they are open to misinterpretation. When you read the guidance and read the criteria for subprime loans, every banker has made subprime loans, he said.
I think if we were writing that guidance today, we would be writing it differently than it was written then. The guidance was to be targeted to programs which target subprime borrowers. And we dont emphasize that enough in our guidance we dont make it clear that this was intended for a relatively small universe of bankers.
Mr. Reich revealed that the agencies have decided to revisit the guidelines soon, possibly with a question-and-answer supplement that more clearly explains which institutions they apply to. But he also said that he was not happy with the process for developing the guidelines, and that the regulators should have done better.
Its too bad that we have to issue a clarifying release, he said. We should have done it right the first time. One of my focuses will be to try and prevent this from reoccurring in the future and get it right the first time.
The guidelines should have been vetted with bankers so they could have raised their concerns before release, Mr. Reich said. That would have allowed the regulators to write clearer, more careful language, he said.
Mr. Reich said he would be keeping an eye on any future releases on predatory lending.
He also said he worries about the regulatory burden that institutions face.
Mr. Reich worked his way up from a cashier at Busey First National Bank in Urbana, Ill., to president and chief executive officer of First Commercial Bank of Fort Myers, Fla., and president and CEO of National Bank of Sarasota, which had $450 million of assets before Citizens and Southern National Bank bought it in 1987.
He said that his 23 years in the business have taught him that conservative banking tends to pay off. The banks and bankers that survive are those that adhere to conservative management policies.
On Thursday the FDIC is scheduled to release a list of recommendations to Congress on deposit insurance reform. Mr. Reich said that he has been pleased with how the agency has managed the debate, but that he bluntly told industry representatives they need to turn up the heat if they hope for quick congressional action.
If the members on the Hill dont sense there is a sort of ground swell, a demand, and a consensus, it wont happen, he said.
But even then, the legislative process is likely to be slow, Mr. Reich warned.
I dont see a quick resolution to the current debate, he said. There is no consensus in the industry yet. In the eight weeks Ive been here, weve hosted delegations of bankers from 10 states, and although there is a lot of interest in deposit insurance reform, I dont sense a lot of passion, and certainly not a consensus.
Bankers should not be surprised at the possibility of changes at the agency. Mr. Reich said that while the FDIC board which currently includes FDIC Chairman Donna Tanoue, Comptroller of the Currency John D. Hawke Jr., and Office of Thrift Supervision Director Ellen Seidman, all Democratic appointees remains in transition, he will focus much of his time on the agencys budget.
The agency has been downsizing for a number of years, and each successive budget over the past several years has been smaller than the previous budget, he said. But my sense in talking with various members of senior management is that we still have a ways to go. I dont know how far that is. I intend to find out.
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