WASHINGTON -- Thrift regulators, having decided that the worst of the savings and loan crisis is over, told examiners at a closed meeting last week to alter their aggressive style.
In a sense, all examiners are being asked to go from being executioners to physicians.
"Rather than closing down sick institutions, we are now in a position where we can help healthy institutions grow," said John F. Downey, deputy director for regional operations at the Office of Thrift Supervision and a speaker at the examiner's conference, which was held May 10-12 in Dallas.
A Shift in Focus
OTS officials described to 240 senior examiners and field managers from across the country a new regulatory approach that focuses more on compliance with consumer and antidiscrimination laws and a bit less on safety and soundness issues.
The meeting was not open to the public, and even some of the best-connected industry insiders were kept in the dark about what took place.
The improving health of the savings and loan industry led the OTS to ask at the conference, "are we more a help or a hindrance to the [thrift] industry and its future viability," Mr. Downey said in an interview recounting the session last week.
The agency sees the need for the shift because the industry it regulates is much healthier than it has been for a decade. At the end of last year, he said there were 200 "problems thrifts," with assets of $127 billion. Of those, perhaps 30 will fall by the end of the year, the OTS estimates.
For those sick thrifts, we're not calling off the dogs," Mr. Downey said. We're going to remain vigilant."
But the number of sick institution has declined dramatically in just the past few years. There were 464 such problem thrifts, with assets of $252 billion, in the fall of 1990, an OTS spokesman said. And now most of the institutions are "doing very well," Mr. Downey said.
One of the key problem is that bankers "view the examiners as a roadblock" to making loans, he said.
Even healthy banks fear that examiners automatically frown on certain kinds of loans, such as those for affordable-housing projects or commercial real estate, Mr. Downey said. At the conference examiners were told to break past those stereotypes.
"Don't continue to feel that every institution you are going into is like the ones you saw 31/2 years ago," Mr. Downey told the examiners. "I don't think the role of the regulators is to prevent credit from being granted."
The OTS will shift the emphasis of its exams away from safety and soundness questions and instead pay more attention to whether thrifts comply with consumer laws, such as the Community Reinvestment Act and Home Mortgage Disclosure Act.
Mr. Downey will step up the ratio of field examiners who focus on compliance to at least 15%. The OTS now has 131 examiners across the country who focus on compliance issues, and 826 who concentrate on safety and soundness issues, an agency spokeswoman said.
The agency is downsizing because the thrift crisis wiped out so much of the industry. In the past three years, the OTS has reduced its staff by 40%.
In part to deal with the cutbacks, OTS examiners will work with smaller samples of the loan population for safety and soundness exams.
Now, he said, examiners will be encouraged to "take a look at the machinery," including thrifts' policies, practices, and internal controls.
"We should be doing more to try to help our thrifts complete in a very competitive market," Mr. Downey said. The agency can helps speed up a thrift's applications for, say, opening a new branch, acquiring other institutions, or beginning new activities, he said.
Examiners were also instructed to move away from their past practice of giving savings and loan officials thick reports that chronicle a thrift's every violation.
"We don't have to send them back a report that's a big as the New York telephone directory," Mr. Downey said.
As another example of the changing culture at the agency, Mr. Downey said that the OTS will single out for reward the examiners who work with institutions to help them survive. In the past, the OTS has promoted examiners who were responsible for shutting down problem savings and loans and helping put wrongdoers in prison.