Flak May Fly at Bank Executives
WASHINGTON - Bank managers and directors, watch out: You are likely to catch some of the flak that regulators are taking on Capitol Hill.
As it considers bank-reform legislation, Congress is showing an acute interest in the regulatory agencies. In turn, regulators are likely to deflect that attention toward the people running the banks.
"We will be more assertive in our discussions with boards of directors to fix problems," Comptroller of the Currency Robert L. Clarke said Friday at a congressional hearing, where he and other regulators took heat for their handling of bank failures.
Preparing the Hot Seat
Meanwhile, lawmakers are preparing to put bank directors on the hot seat. House Banking Committee Chairman Henry B. Gonzalez, D-Tex., announced Friday that he plans to hold a series of hearings on directors' responsibilities for ensuring a bank is run safely and soundly.
The failures of Bank of New England and National Bank of Washington were the focus of recent congressional hearings in which lawmakers accused regulators of waiting too long to close failing institutions.
Friday, the banking panel explored the May 11 closing of Madison National Bank of Washington. Mr. Clarke, whose nomination to a second term is pending in the Senate, took a pounding.
Madison's Problems Known
The Comptroller's office clearly knew of Madison National's problems. The agency examined the bank four times from the third quarter of 1988 to May 1991, cited the bank for 80 violations of law and regulation, and took a series of enforcement actions against directors but never imposed money penalties or called for officers' removal.
Bank directors "fought us every step of the way," Mr. Clarke testified.
After the hearing, Mr. Clarke said his agency will be less willing in the future to accept that managements are making OCC-prescribed changes in light of the way Madison National's directors ignored OCC directions.
Mr. Clarke defended the OCC against lawmakers' criticism that the agency waited too long to take over Madison or any other failed bank. Regulators may not take over a bank until its equity is exhausted or it is illiquid, he stressed.
Rep. Gonzalez said the cost of cleaning up failed banks is escalating because the OCC gives troubled banks too much leeway to try to work out of their problems. The agency, Rep. Gonzalez said, is aided by the Federal Reserve, which is keeping faltering institutions alive by pumping money in through its discount window.
In the 10 days before Madison National's main bank failed, its Fed borrowings spurted to $125 million, from $41 million - mainly to cover a $77 million run by depositors.
The bank's deposits and certain assets were transferred to Signet Bank of Washington. The failure is expected to cost the government $156 million.
The directors of Madison National were all invited to testify Friday, but only one accepted. Rep. Gonzalez said he may subpoena the testimony of the other directors.