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Stewart in the hot box San Antonio, Austin State Banking Commissioner Robert Stewart was raked over the coals by the subcommittee. The members wanted to know why his department had not acted more quickly and decisively to avert disaster at Citizens State. “You remember Sharpstown?” St Germain probed. “Obviously no significant changes have been made since then. The problem at Sharpstown was the same as at Citizens Stateinsider loans. The ownership was self-serving,” St Germain said. Stewart spent most of his time trying to explain his inactivity despite dire warnings issued by his own departmental examiners 15 months before he closed Citizens State Bank on grounds of insolvency. The commissioner alternated between wiping egg off his face and splitting hairs with the congressmen about loan classifications. When they would ask him about some large loan to an insider, Stewart would ask whether the loan had been classified as substandard, doubtful, or loss. The subcommittee members were clearly impatient with his responses. Following the hearing, Stewart complained that he does not have enough examiners to “keep in these banks on a 24-hour basis,” so he just can’t know what all the banks are doing all the time. Indeed, the Banking Department is seriously understaffed. And a recent study indicated that because of low pay and high turnover, many of the bank examiners are inexperienced. But Stewart’s staff surely had enough time and warning to react more quickly to the problem in Carrizo Springs. As the subcommittee pointed out, Citizens State Bank showed a steady financial deterioration. Between July, 1974, and March, 1975, Rep. Henry Gonzalez noted, the amount in loans criticized by bank examiners grew from $53,000 to $1 million. “I fail to understand why the regulatory body didn’t intervene in March, [1975],” said Gonzalez, glowering at Stewart. “The bank was placed on a problem list,” replied Stewart. That answer hardly satisfied Gonzalez, who then wanted to know why the Carrizo Springs bank wasn’t formally ordered to cease loaning money to directors and their friends and to stop making the kinds of poorly collateralized loans which riddle the bank’s classified list. Jim Bob Nance, the young executive vice president of the Carrizo Springs bank until it was closed last June, told the subcommittee that the Banking Department had given the bank certain directives. For example, he said, directors were told they could not make loans of $10,000 or more without re porting them to the department. But “you could come in and get two or three $9,500 loans and not have to report it,” Nance told the committee. “The $10,000 limitation was circumvented?” asked Gonzalez. “Yes sir,” replied the boyish Nance, adding that the San Antonio directors “seemed to think that the bank would never close and that they were powerful enough to keep it from closing.” Asked by the subcommittee to identify those who borrowed $9,500, Nance named former Lt. Gov. Ben Barnes, his partner Herman Bennett, and Dr. William Thornton. Checks-made out to Bennett and Thornton were “later endorsed over to Barnes,” who then went to Eagle Pass to “meet with Mr. [Richmond] Harper,” Nance testified. The loans to Barnes and Bennett later were flagged by bank examiners because they were out-of-territory and unsecured. Barnes has said that the loans were for cattle and were repaid. The congressmen were not pleased to hear about the ineffectiveness of the loan limit, and they were even less pleased when Asst. Atty. Gen. David Pace told them his office had never been asked to enforce a cease-and-desist order by the Banking Department. Said Gonzalez in his closing statement, “What is disturbing . . . is that the State Banking Department appeared Jo Clifton Banking Commissioner Stewart passive and supine in the face of a clearly unsafe and unsound pattern of behavior.” [banking] behavior.” Two days after the hearings, Stewart complained that Gonzalez did not have ac cess to departmental files so that the congressman could not know what the department did to solve the problems at Citizens State. Stewart still could not say for sure what his department had done, however. On the matter of reporting large loans, Stewart said, “I would think that our instructions would have run to total lines [of credit] rather than total loans . . . I just don’t know. I may be very disappointed myself in what those files show.” At that point, Stewart said, he would have departmental employees go through the files and compile a summary of actions taken by the department so he could send them to the subcommittee as a defense. One week later, as the Observer was going to press, Stewart apologized for delays in getting the summary, which was to be shared with reporters. He admitted that the department had never entered formal ceaseand-desist orders against the Citizens State bank. However, Stewart said, the department had written a letter to the directors in May, 1975, two months after the first adverse examination, outlining reporting procedures on loans and issuing other directives. Clearly this kind of friendly persuasion had little effect on the Carrizo Springs bankers. A little pressure from the attorney general would have served better, but Stewart declined to ask the other agency for help until he was sued by Salinas for closing the bank. Perhaps that is because he really thought, like Jim Bob Nance, that everything would come out all right in the end. Stewart’s other problem is that he has trouble keeping up with governmental affairseven when they affect his own de : partment. One day after Gov. Dolph Briscoe announced public support for legislation to give the department authority for approving new bank owners, Stewart opined, “I’m not sure the governor has decided that this is absolutely the thing to do. It’s just one possible way of correcting what may be a problem.” BACKGROUND Additional Observer articles on the bank scandal and related subjects include: “One juicy bank scandal,” Sept. 3. “The San Antonio group,” Sept. 3. “The savings and loan gambit,” Oct. 1. “The FISL connection,” Oct. 29 “FDIC moves on Manges,” Nov. 26. December 24, 1976 3