William Isaac, a former chairman of the Federal Deposit Insurance Corp., says he understands why the agency might want to keep secret the losing bids for failed banks.
"Let's say the winning bidder bid twice as high as the next bidder," he said. "That would be embarrassing to the winner."
But Isaac is among the few to defend the FDIC's move to withhold the bid information after two decades of disclosing it. Other reactions ranged from outrage to just plain puzzlement.
"I am scratching my head on this," said Jerry Blanchard, a partner in the financial institutions practice at the law firm Bryan Cave LLP. "What exactly is it that they don't want everybody to know?"
The FDIC stopped revealing the names of losing bidders and the details of their bids in late May, offering no explanation.
Though it had expected to decide by the end of September whether to make the new practice permanent, a spokesman said the agency is still reviewing this policy.
He would not say when the review might be complete or answer other questions.
But many industry observers are questioning how the FDIC can indefinitely suspend the release of what have long been considered public records.
Even bankers such as Dan Rollins, the president of Prosperity Bancshares Inc. in Houston, said the FDIC should release all the bidding information.
"I don't understand how they arbitrarily decided not to," he said. "I thought the government was supposed to be transparent."
The $8.8 billion-asset Prosperity has been an active bidder on failed banks in this down cycle. It bought the $5 billion-asset Franklin Bank from the FDIC last November before the agency sequestered any bid information.
But it was among the losing bidders this August for the $13 billion-asset Guaranty Bank, which went to BBVA Compass of Birmingham, Ala., the U.S. unit of Spain's Banco Bilbao Vizcaya Argentaria SA.
"How does the public get to decide if that was the best bid or not if they won't disclose who the other bidders were?" Rollins asked. "Every deal we have ever bid on, our expectation was, whether we won or lost, the information would be public."
Like Isaac, some observers speculated that the FDIC wants to protect winning bidders from looking foolish. They might be accused of overpaying if the gap is wide between their bid and next-highest one, as is sometimes the case.
Others suggested that the FDIC might be bowing to pressure from private-equity groups. These bidders might want to pursue failures without attracting public attention, and the FDIC is eager to attract more capital into the industry.
But Blanchard said he has yet to hear any reason that sounds valid.
"There is something we are not seeing or glossing over that they are concerned about that I can't put my finger on," he said.
In August, a source familiar with the FDIC's thinking said one concern prompting the review was that a bank might put in the highest bid but be rejected because regulators considered it too weak.
But Robert Hartheimer, a former FDIC director of resolutions and now a special adviser to Promontory Financial Group LLC, said the bidding process weeds out the weak.
"I would tell you, they will never let a weak bank be invited to consider purchasing a failed bank," he said. "It just doesn't happen."
Hartheimer said each institution must get its primary regulator to sign off on a bid before giving it to the FDIC; this ensures the bidder is healthy enough to take on a failed bank and has a feasible business plan for doing so.
"There is a good system at the FDIC," he said.
The process was designed to eliminate any need for a discretionary call, for example, because the FDIC thinks one bank is healthier than another and thus wants to throws out the highest bid, Hartheimer said.
John LaFalce, the top Democrat on the House Financial Services Committee from 1998 to 2002 and now special counsel at the Buffalo law firm HoganWillig, said the FDIC owes the public an explanation for withholding the names of the losing bidders and their bids, "since there is a departure from a longstanding precedent."
LaFalce said once the policy rationale is disclosed, people can challenge its legality in court, so the FDIC is in a prickly situation.
"I'm sure the reason they are delaying is, they are probably grappling with the decision themselves," he said.
Texas state Rep. Dan Flynn blasted the FDIC for even considering the policy change, saying the agency does not have the authority to reinterpret the Freedom of Information Act.
"It is disturbing to me that the FDIC is making rules in the back room," said Flynn, a Republican who has been involved in the industry as a banker or bank owner for almost 50 years. He also is vice chairman of the Financial Institutions Committee in the state House of Representatives.
Isaac, now the chairman of LECG Global Financial Services, said the bids had been kept private when he headed the FDIC in the mid-1980s.
"I do remember discussing the issue when I was there and deciding not to release it," he said. "I can't think of a reason that information is relevant to anybody, except to make sure the FDIC is not doing deals with other than the highest bidder. I am not worried about that because the second and third bidders can protect themselves quite well. Every bidder knows what the winning bid is. If I put a higher bid in, then I can complain."
But Ken Thomas, an independent bank consultant and economist in Miami, argued that the government needs to be open to public scrutiny when making deals with private companies.
"This is the FDIC. This is not some private-equity group or hedge fund," he said. "The taxpayers ultimately backstop them with the full faith and credit of the government."
According to information posted on the FDIC's Web site, the bids became public after thrifts began failing by the hundreds in the late 1980s.
The Federal Home Loan Bank Board, which oversaw the bidding then, was heavily criticized for how it handled the sales because the buyers had received tax breaks that cost the government more than if it had liquidated the thrifts.
In criticizing the deals, the late L. William Seidman, the FDIC chairman at the time, famously quipped, "Buy a toaster, get a thrift."
In 1989, as banks started to fail along with thrifts, Congress debated how to prevent such sweetheart deals, eventually enacting the Financial Institutions Reform, Recovery, and Enforcement Act.
Besides creating the Resolution Trust Corp., the legislation imposed more oversight of failed-bank deals, requiring public disclosure of any government-assisted transaction, except in cases where disclosure would be against the public interest.
Several industry consultants, including Thomas, said they have been collecting all the bids for failed banks since then.
Lucy Dalglish, the executive director of the Reporters Committee for Freedom of the Press, said she cannot say with certainty if the FDIC move is at odds with FOIA, without knowing its reason for withholding the bid information. FOIA details what can be kept confidential and requires public disclosure in all other cases.
Dalglish said it is unusual for a government agency to change its disclosure policy without giving a reason, especially given the current administration's stance on transparency. "I find this a very, very curious position to take, particularly in the face of President Obama's stated intention on his first full day in office that it would be transparent on information," she said.
Dalglish agreed with Thomas that disclosure is important to ensure government funds are being handled appropriately.
Though the FDIC assesses fees on banks and thrifts to insure deposits, the taxpayers are ultimately responsible for monitoring all that the government does, she said.
"Taxpayers have a right to know what the federal government is doing with their money," she said. "It boils down to that."