Leach Bill Would Expand FDIC Chief's Exam Power

The Federal Deposit Insurance Corp. chairman would gain sole authority to order a special examination of any financial institution under legislation introduced Tuesday by House Banking Committee Chairman Jim Leach.

Under current law, it takes a majority of the full FDIC board before the agency may send examiners into a bank that is not under its primary supervision.

On the House floor, Rep. Leach blamed both the FDIC and the Office of the Comptroller of the Currency for the spectacular failure Sept. 1 of First National Bank of Keystone.

"The Keystone incident shows the FDIC to be coerced not by the regulated, but by its fellow regulators," the Iowa Republican said. "The FDIC ... should have taken a more aggressive stance in insisting on its authority to examine Keystone."

But Rep. Leach reserved most of his criticism for the Comptroller's Office. "What has become apparent in extensive discussions with FDIC and OCC staff is clear resistance on the OCC's part to FDIC review of banks in certain difficult situations," he said. "Instead of welcoming FDIC expertise and assistance in analyzing the increasingly complex operations of the bank, the OCC initially denied the FDIC's request to participate in a bank examination."

For years, regulators closely tracked First National Bank of Keystone, but were unable to prevent its costly failure. Shortly before closing it, examiners were shocked to discover that roughly half of the bank's $1.1 billion in assets were missing. The money has not been found, and the failure could cost the Bank Insurance Fund up to $850 million.

Rep. Leach said his bill is designed to give the FDIC more independence to conduct what's known as a "back-up" exam. The FDIC has primary responsibility for examining state banks that have not joined the Federal Reserve System. The Fed oversees the state banks that do join, and the Comptroller regulates national banks. Thrifts are covered by the Office of Thrift Supervision. Both the OCC and the OTS are bureaus of the Treasury Department and both hold seats on the FDIC board.

When the agency's five-member board is understaffed, as it has been for more than a year, 2-2 ties can paralyze the agency, Rep. Leach noted. What's worse, the Comptroller and the OTS director vote on FDIC back-up exams of institutions under their jurisdictions.

"The FDIC has a unique role in our financial system and it must be insulated from regulatory turf battles and political considerations," the Iowa Republican said.

Congress is expected to adjourn for the year on Wednesday, so the bill will not be considered until next year.

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