A yearlong dispute between the Office of the Comptroller of the Currency and Hamilton Bank ended on paper last month, but the Miami community bank is still fuming about the regulators policies on lending in Latin America.
On Sept. 21 the OCC released a consent agreement instructing $1.7 billion-asset Hamilton to adhere to OCC guidelines on international lending. The bank and the regulator had been at odds over how much Hamilton should keep in reserve to cover loans made to customers in Ecuador or to U.S. customers doing business there. 
In the spirit of cooperation and to move on to more positive things, we signed the consent order, said Hamilton president J. Carlos Bernace. But until this day we do not agree with the OCC, to put it mildly.
The OCC requires that a bank put an amount equal to 90% of its Ecuadorian loan exposure in allocated transfer risk reserves. Hamilton says the rule, established in the 1980s amid a rash of crises in Latin America, is outdated and arbitrary.
We feel that the OCC has taken a discriminatory path, Mr. Bernace said.
Richard X. Bove, an investment analyst with Raymond James & Associates of St. Petersburg, Fla., said Hamilton executives believe they are not getting any bad loans from Ecuador, and the OCC is saying a rules a rule.
The OCC enforced its rule during a routine examination of Hamilton in August 1999. At that time the bank had about 30% of its Ecuadorian loan exposure in reserve, which Mr. Bernace said was more than enough.
In December Hamilton reluctantly allocated 90% of its exposure for the fourth quarter, resulting in the first quarterly loss in its 12-year history. The regulator then ordered the bank to redo its call reports for the three previous quarters to reflect an increase in reserves.
Instead, Hamilton appealed and tried to reverse the OCCs enforcement. Mr. Bernace argued that the 90% rule was excessive for Hamilton because it had had few chargeoffs relating to Ecuador. Moreover, he said the bank had already taken its own precautions by cutting its loan exposure in Ecuador in half last year, to about $70 million, to protect itself from future economic troubles there.
Mr. Bernace maintains that his bank is being scrutinized more closely by the OCC because of its size and its frequent dealings with Latin America. Hamilton, one of a handful of community banks involved in Latin American trade finance, is an active lender there, and about half of the loans it makes anywhere are related to international trade.
Kenneth H. Thomas, a Miami banking consultant, said that compared to the way the OCC deals with larger banks, it appears the regulator is watching the Hamiltons of the world more closely. That was apparent, he said, when the regulator took formal action to enforce the risk reserve rule.
It could have resulted in an order that was an informal action, but the OCC felt strong enough about it to issue a formal order which basically rewrites polices for the banks, Mr. Thomas said.
The OCC would not comment specifically on the Hamilton case, but OCC spokesman Kevin Mukri said that it treats banks equally, regardless of size, on trade financing policies, and that it is not trying to push small banks out of Latin America.
To uphold its rules, the OCC returned Hamiltons appeal with a temporary cease-and-desist order until the bank included the Ecuadorian reserve in all of last years call reports, and then followed up last month with the formal consent agreement.
The latest agreement states that Hamilton must review and rewrite its policies and a set up new procedure guidelines, including tighter loan allowances and reserves, higher minimum capital levels, and a revised strategic plan.
Hamilton will also be reviewed frequently by the OCC and the banks board, but the banks management will remain intact.
Mr. Thomas said that leaving the management untouched shows that the OCC thinks Hamilton is run well, but that the regulator just does not agree with the banks dealings in Ecuador.
Mr. Bernace said the bank already has in place most of the policies and procedures that were detailed in the 34-page consent agreement.
The things we were supposed to do we have done, and this doesnt affect our operations, he said. We just have to do a lot of paperwork.
He also said he is disappointed in the way the OCC handled the matter, but wants to work with it to move past this issue. If the agreement does not help to ease the friction, Hamilton may look to change to a state charter, he said.
