The Federal Deposit Insurance Corp. missed several chances to clamp down on a high-flying Colorado bank before it failed in July, the agency's inspector general has concluded.

Examiners had recommended a slew of enforcement actions against BestBank of Boulder starting in 1992, but many were abandoned, an internal FDIC report said. The proposed actions included a cease-and-desist order, two civil money penalties, four memoranda of understanding, and the forced removal of BestBank owner and chairman Edward P. Mattar 3d.

"The supervisory tools that were available to the regulators were not aggressively pursued in a timely or effective manner," said the report on what has become a rare event in banking regulation.

BestBank and Omnibank of River Rouge, Mich., were the only two U.S. banks that failed last year.

FDIC investigators said BestBank and its partner in a subprime credit card program, Florida-based Century Financial Group, "severely hampered" examiners by concealing the portfolio's high delinquency rate and hindering access to information and employees. It took the FDIC and Colorado bank examiners approximately two years to uncover the deception.

Inspector General Gaston L. Gianni Jr. said more aggressive supervision could have saved the Bank Insurance Fund millions of dollars.

Estimated losses from the defunct Colorado bank are mounting. As of Dec. 31, the failure was projected to cost the fund $172 million, six times the FDIC's original loss estimate and a staggering 55% of BestBank's $314 million of assets.

The loss could climb further. A deal to sell the troubled card portfolio to a California firm was expected to fall through on Friday, which would force FDIC to liquidate the vast majority of the accounts and hire a collection agency to recover the outstanding balances. That would yield less revenue.

James L. Sexton, director of the FDIC's supervision division since Jan. 4, was not available to comment Friday. But in a letter to assistant inspector general David H. Loewenstein, he called a draft of the report "fundamentally and substantially flawed" and chastised its authors for the negative tone.

Mr. Sexton agreed that the BestBank experience should call further attention to supervisory "red flags" such as rapid growth, high compensation, excessive reliance on servicers, and concentration of risk.

BestBank's assets grew 648% in its last two years, with the majority of those assets locked up in the subprime credit card portfolio.

Mr. Mattar and BestBank president Thomas Alan Boyd were paid performance bonuses totaling $9.5 million in the first half of 1998. They relied almost entirely on Century Financial Group to administer the credit card campaign.

BestBank was examined nine times between October 1992 and its closing last July 23. It earned Camels ratings of 3 or 4 each time until June 1998 when it received a 5, the worst score.

According to Mr. Sexton, BestBank and Century Financial were the real culprits, concocting a "scheme" to convince examiners that hundreds of thousands of delinquent credit card accounts were actually current. "The examination process is not specifically designed to detect fraud," he wrote.

Mr. Sexton said that legal barriers and interim conciliatory actions by BestBank, not timidity, had led the FDIC's supervision division to abandon some of the recommended enforcement actions.

He also criticized former FDIC Chairman Ricki Helfer, who in 1996 asked the inspector general to investigate Mr. Mattar's allegations of unlawful examiner conduct. He said the examiners were intimidated and became convinced that Mr. Mattar had "unusual influence" in Washington.

In an interview Friday, Ms. Helfer recalled telling a top supervision division official to continue doing whatever was necessary to keep BestBank in line. "When these loss reports come out, everybody scurries to find somebody else to point to," Ms. Helfer added.

The inspector general's office was similarly unmoved by Mr. Sexton's nine-page rebuttal. Patricia M. Black, counsel to the inspector general, said his letter led to no significant changes in the report's conclusions.

Based on the BestBank incident, the report makes 11 recommendations for the FDIC's supervision division. A number are aimed at assuring that examiners have "immediate, unfettered access" to bank employees and records, as well as those of nondepository affiliates. The report also urges the supervision division to expand the focus of its credit card examination guidelines to include subprime lending.

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