Democrats Attack Clarke, May Try To Bar Him from a Second Term
WASHINGTON - Comptroller of the Currency Robert Clarke came under heavy fire Thursday from members of the Senate Banking Committee, casting doubt over his nomination to a second term.
Several committee members indicated they may vote against Mr. Clarke, who is scheduled to appear at a confirmation hearing next week.
Riegle Talks to White House
Sen. Donald Riegle, D-Mich., the banking panel's chairman, said he is urging the White House to reconsider Mr. Clarke's nomination to a second, five-year term because of "significant regulatory lapses in dealing with the Bank of New England and other banks."
But Sen. Riegle and other committee members did not state firmly that they would vote against Mr. Clarke.
The comptroller "is in real trouble," said Sen. Richard Shelby, D-Ala, a member of the banking committee. "Whether he'll survive, I don't know."
A Treasury Department official questioned the motivations of Mr. Clarke's critics, Dow Jones News Service reported. Suggesting a possible "witch hunt," the official said, "It's hard to tell whether [Sen. Riegle] is going after Clarke or just blasting the administration."
Clarke Is Called AWOL
In a preview of the criticism Mr. Clarke is likely to face, Senate Banking Committee members chastised him Thursday for napping while Bank of New England was reeling out of control.
"What I see is a regulator who was absent - AWOL on the job," said Sen. Alfonse M. D'Amato, R-N.Y. "When you are absent without leave ... and then you come back with a ferocity ... then what you are doing is double damage."
Charles A. Bowsher, who heads Congress' General Accounting Office, told the committee that the regulatory breakdown at the comptroller's office is "inherent in the supervisory practices of all three federal bank regulators."
Mr. Bowsher called for a complete overhaul of regulation.
Seven of the banking committee's 21 members attended the Thursday hearing - six were Democrats - and they had few kind words for Mr. Clarke.
"It is just a sad record here of the regulator from hell not defining where the hell hell was," said Sen. John F. Kerry, D-Mass., referring to a characterization of Mr. Clarke that the regulator himself had quoted in tongue-in-cheek style.
"The result was ... a patchwork regulation that didn't have consistency," Mr. Kerry said.
Committee Chairman Riegle attributed the Comptroller's failings to "two defective philosophies that collided."
He said the philosophy of [a] bank was to grow at any cost, while the philosophy of the regulators relied on "bank management to regulate itself."
"Somebody has to be held accountable for this kind of failure," Sen. Riegle said. "The problem was allowed to go on and pyramid itself. Taxpayers are being asked to come along and pay for these mistakes."
Mr. Bowsher appeared before the committee to answer questions about a General Accounting Office report earlier this week on the Bank of New England collapse. The GAO estimates that the Bank of New England's collapse eventually will cost the Bank Insurance Fund $2.5 billion.
Extensive Study by GAO
Mr. Bowsher's staff concluded that the Boston bank more than quadrupled in size from 1985 to 1989 through acquisitions and aggressive real estate lending. During the spurt, examiners "repeatedly identified" and reported problems with BNE's systems and controls over lending activities, but did not characterize the problems as serious until 1988.
Other problems unearthed by the examiners at the time included the following:
* There was no independent loan-review mechanism.
* Management was overly optimistic with projections of earnings growth.
* Credit documentation in the construction lending portfolio was out of date.
* In an expanded 1989 examination, the Office of the Comptroller found four violations of rules governing insider transactions on loans of $4.3 million. The agency recommended an assessment of civil money penalties but never acted on it.