Did Clarke Know Republic Was Failing?

WASHINGTON - The comptroller of the currency knew that Republic National Corp. of Dallas was about to fail when he approved its 1987 merger with troubled Texas rival InterFirst Corp., according to the Oct. 14 issue of Forbes.

An article by William Barrett cites a confidential memo from examiners who saw danger in the merger but refrained from objecting - on the outside chance the merger might succeed.

Mr. Barrett claims the merged entity, First RepublicBank Corp., cost the Federal Deposit Insurance Corp. more than if the two banks had been permitted to die separate deaths.

Required Reading for Riegle

Whether or not the conclusion is accurate, the article in a national magazine is more bad news for Robert L. Clarke's bid for confirmation from the Senate Banking Committee to a second five-year term. Committee Chairman Donald Riegle's staff said he had not yet seen the article and had no comment.

The merger resulted in a $33 billion-asset bank - and, when it failed 14 months later, a $3 billion hit for the FDIC.

The April 1987 memo by Nancy Cody and Richard Erb, obtained by the American Banker, said both Dallas banks were riddled with problems:

"The results of a premerger review, if validated, reveal Republic to be an institution also weakened by asset quality problems to the point where failure is a distinct possibility," it warned.

The report also mentioned that an examiner in a prior review rated Republic a 5, the lowest possible regulatory grade.

The examiners, however, "recommended no objection be posed to the merger," because the banks would reap cost savings down the road. Leonora Cross, a spokeswoman for the OCC, said all banking regulators approved the deal.

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