Page 14


4%100,14. 1*-.14 VINO. ft.. Fed Comptroller Rejected Southwest bank currents sweep. Clarke under BY DEBORAH LUTTERBECK “A reputation for something less than competence, hidden motives and duplicity may not destroy you, but it will destroy your opportunity to participate in that great debate that our Federal Government was designed to ensure and promote.” Robert Clarke, U.S. Comptroller of the Currency. Oct 23, 1990 speech before the annual convention of the American Bankers Association. Washington, D.C. WHEN ROBERT CLARKE made these remarks, he probably never thought they could apply to himself. But after a 10month struggle to get renominated to his post as top regulator of more than 4,000 of the nation’s banks, he probably knows better. One of the early strikes against Clarke came from Rep. Henry Gonzalez, D-San Antonio, who was armed with a study showing that banks under Clarke’s watch accounted for almost three-quarters of the losses to the industry’s insurance fund. The final blow came from the Senate Banking Committee. In early November, it did to Clarke what no other committee has been able to do to a Bush nominee rejected him. Some people say Clarke was made into a scapegoat for the crisis in the banking arena. Others maintain he was speared by his own record. No one would argue that one of his biggest problems was Texas. Before Clarke became head of the Office of the Comptroller of the as a banking lawyer in Houston. If anyone should have been able to grasp the economic currents in the Southwest it was he. His record shows he did not. In May 1988, he told the Senate banking committee that “the worst may be over” for the Texas economy. “Ongoing improvement in Texas, coupled with continued strength in the U.S. economy, will Cassandra. Within two months, First Republic failed. Within 10 months, MCorp toppled and a few months later, Texas American shut its doors. In 1988 and 1989, Texas had sapped the banking industry’s insurance cushion of more than $8 billion. Something was also amiss in far regions of the Northeast corridor, something that resulted in the $2.5 billion crash of the Bank of New England. When the government’s watchdog, the General Accounting Office, studied the situation they found that, though examiners from Clarke’s OCC discovered problems with the bank from 1985 until 1988, action was not taken until 1989. Now, no one would deny that both the Southwest and the Northeast have borne the brunt of economic hardship. But competence, like virtue, is easier to find in times of prosperity. “A supervisor’s performance is only tested when the region encounters economic stress,” maintained Gonzalez. An extensive House banking committee report released in September showed that Clarke flunked the stress test. Gonzalez’s staff report concluded that Clarke’s practice of using limited bank examinations was a “failed policy” that “unnecessarily Deborah Lutterbeck is an economics and financial reporter living in New York City. placed the insurance fund at risk.” The bottom line was even more startling. The banking committee found that 73 percent of the losses to the Bank Insurance Fund from 1986 through June 1991 were from OCC banks. Not so, said Clarke. “First, the assertion that the OCC’s supervision is inferior to that of other federal bank supervisors is unfounded,” Clarke said in a letter to Gonzalez. “Our analysis shows that the results presented in the Staff. Report are skewed by what happened in one state Texas. Failures of all banks were regrettably high, regardless of who supervised them, but for a variety of reasons, a disproportionately high percentage of banks that failed in Texas were federally chartered,” he added. Gonzalez described Clarke’s response as “defensive boiler plate that dodged the central findings of the Committee’s report.” He added, “We did not start with any preconceptions when we first requested information on losses from each of the three banking agencies, the OCC, the FDIC and the Federal Reserve. It was not until we compiled the statistics that we discovered banks under the OCC’s watch caused the greatest losses to the Bank Insurance Fund.” Those losses amounted to $15.8 billion, for 450 banks that failed between 1986 and 1990. In Texas alone, bank failures caused half of the losses. The Texas regulatory problems began to unfold in 1987 when, after surveying the six largest national banks in Texas, Clarke relaxed the accounting standards used by banks for troubled commercial realestate loans. In July 1987, the OCC under Clarke allowed banks to hold real-estate loans at their projected, or hoped for, value rather than their current market price. Questions about Clarke’s ethics also played a role in his downfall. Last April, news reports raised questions about some of Clarke’s financial transactions. Clarke, who always had his holdings reviewed by the ethics officers in the Treasury Department, decided to remove any doubt by putting his holdings in a blind trust in May. In June, when the official report on Clarke’s holdings were released, the. Treasury gave him a clean slate, while also “recogniz[ing] that certain transactions may give rise to an appearance of conflict.” The issues in question included two loans and a credit card from First Interstate Bank of Texas. These loans landed in that bank after First Interstate Bancorp of L.A. acquired the Texas state-chartered Allied Bancshares, which had originally held Clarke’s loans. In other words, the loans were perfectly legal. There were also questions about Clarke’s involvement in several limited partnerships. When Clarke took office in 1985, he said he would be unable to dispose of his interest in six partnerships by the Dec. 2 date of his appointment as Comptroller. To get around this problem, according the the Treasury Department, !!On December 10, 1985, Secretary James Baker III, granted a waiver which permitted Mr. Clarke to participate in legislative, rulemaking and general policy matters which affected the institutions in which he had imputed interest as part of the banking industry.” The waiver required Clarke to recuse himself from matters involving institutions in which Clarke had an interest. There was also Clarke’s investment in tax certificates with Dana Cook, a one-time OCC employee. The Treasury concluded, “While the joint investments with the former OCC employee created no conflict of interest, such investments carry the potential of an appearance of a conflict of interest.” But Clarke has his defenders. One advocate, Sen. Jake Garn, RUtah, the one-time astronaut and ranking minority member of the 12 DECEMBER 13, 1991