Riegle Charges '87 Policy Change By Clarke Led to Costly Failures
WASHINGTON - Senate Democrats charged Thursday that Comptroller of the Currency Robert L. Clarke set the stage for costly bank failures by relaxing classification standards for real estate loans in 1987.
In a stormy start to Mr. Clarke's confirmation hearing, Senate Banking Committee Chairman Donald Riegle asserted that the Comptroller changed policy to help large banks in Texas and the West. But, the senator said, the move backfired.
Mr. Clarke, 49, defended his record in several heated exchanges, which underscored that his second five-year term as Comptroller is in jeopardy.
Sen. Riegle, a Michigan Democrat, said he has "serious reservations" about the nomination, and other senators followed suit.
"I do not believe you are the best person for the job," Sen. Richard C. Shelby, D-Ala., told Mr. Clarke at one point in the hearing, which will go on for another day. "For a smart person, your agency has followed some dumb policies," he said.
"I have confidence at this point in the judgment you have exercised," said Nancy Kassebaum, R-Kan. "But certainly the stakes are high. I firmly believe this is no way should be a rubber stamp."
Mr. Riegle set the stage for the barrage of criticism by saying: "During Mr. Clarke's tenure as Comptroller, national banks under his supervision that have failed have cost us $15.7 billion. This committee has a responsibility to determine whether Mr. Clarke's conduct as Comptroller over the past several years made these problems better or worse."
Mr. Riegle said he obtained confidental documents that show a decision was made to help "certain large Texas and West Coast banks" by relaxing loan standards.
"What was more unusual was this clarification . . . reversed a major part of the original policy.
"What caused you to adopt this approach that was even more lenient than what was adopted by the savings and loans?" Mr. Riegle asked.
Mr. Clarke shot back: "Mr. chairman, I would disagree with you that it was more lenient."
"Did the FDIC adopt your standard?" Mr. Riegle asked.
"I don't recall," Mr. Clarke replied.
"Let me just indicate here they did not," Mr. Riegle said. "Did the Federal Reserve adopt your standard?" he added.
"Once again, I have no recollection. I'm sure you are going to tell me they didn't," Mr. Clarke said.
Mr. Riegle produced an internal agency memo of John H. Noonan, director of the Comptroller's commercial examinations division, who said he had "discomfort" with an agency policy change that allowed examiners to treat loans that were a loss as "doubtful" instead.
Republicans rallied around Mr. Clarke.
"There is a feeling that someone has to be to blame for these terrible financial problems," said Sen. Phil Gramm, R-Tex. "I believe Bob Clarke should be reconfirmed. To change leadership at this point simply doesn't make sense," he added.
"I do not see how we can reject the Bob Clarke nomination on the basis of his bank supervision record without also rejecting the nomination of Alan Greenspan [as Federal Reserve chairman] and Bill Taylor" [as FDIC chairman], said Sen. Jake Garn, R-Utah,
And Mr. Clarke got a letter of support from fellow Texan Lloyd Bentsen, a Democrat who is not on the banking committee.