WASHINGTON — The Federal Deposit Insurance Corp.'s oversight of Franklin Bank in Houston was "not always timely and effective" before its November failure, the agency's chief watchdog said Tuesday.
The agency's inspector general cited risky lending in the demise of the $4.9 billion state thrift, and said the FDIC performed timely exams. But Franklin maintained a Camels rating of 2 until October 2007, despite FDIC recommendations starting in 2003 that it track loan concentrations, rein in liquidity risk and enhance auditing, the IG said.
"The FDIC did not always ensure that bank management effectively responded to such recommendations," the watchdog said in its review of the failure.
The IG also noted that the FDIC did not clearly flag in a 2006 examination report concerns about Franklin's 1-4 family loans, nor did it identify weaknesses in Franklin's acquisition, development and construction loans.
Such failed-bank reviews are required by law whenever a failure is deemed to have caused a "material loss" to the Deposit Insurance Fund.
In a letter responding to the IG report, FDIC supervision director Sandra Thompson agreed with the report's findings, but also defended actions that examiners took in addressing Franklin's problems.
"We acknowledge more timely and strict supervisory enforcement action was necessary," she said in the report. "However, substantial and ongoing supervisory concern was demonstrated by examiner recommendations since 2003 and quarterly off-site monitoring that was conducted because of Franklin's rapid-growth strategy."