ANNUAL CONVENTION

 

Did regulators have to slap so many banks so hard?

 

 

 

 

By Steve Cocheo, executive editor

 

 

In the current banking crisis, regulatory orders and enforcement actions have been handed out with frequency and gusto, and a former federal official frequently described during the crisis of the 1980s as “the regulator from Hell” thinks federal agencies have overdone it.

“Enforcement actions should be for banks that don’t get it,” said Robert Clarke, former Comptroller of the Currency (1985-1992). “They shouldn’t be something put out there to please the agency’s Inspector General or the chairman of a congressional banking committee. They should be used judiciously and used where there is no other way to get the job done.”

Clarke, now senior partner at the Houston law firm of Bracewell & Giuliani LLP, joined fellow speaker Donald Powell and moderator Barrie Christman in an Annual Convention dissection of the current regulatory environment. Powell, FDIC chairman from 2001-2005, now serves on Bank of America Corp.’s board. Christman is chairman of Principal Bank, headquartered in Des Moines.

 

 

Exams should be two-way process
Clarke said he believes banks and regulators need to work harder at communicating with each other. Regulators, he said, need to “calm down” and ask if they really need to take as drastic action in as many cases as they have.

 

Regulators have spoken of cases where, in exam after exam, management does not act on examiner findings or demands for improvement or change. But in his comments in the panel discussion, Clarke took the opposite position at first, criticizing series of exams where guidance from each examiner on a given subject—he used loan loss reserves as an example—proved contradictory.

 

“There needs to be predictability,” said Clarke. “At the beginning of the year, you should be able to figure out what the expectations of examiners are going to be.” Bringing this about requires strong leadership from the top of the agencies that continues all the way down the chain leading to the regulated banks, Clarke explained.

 

By the same argument, Clarke later elaborated, bankers need to consider when regulators are not quite so bad as they would have it. And when what’s been recorded in an exam report is dead on, then the bankers ought to do something about what’s been flagged, said Clarke.

 

 

Hostility infects too much of process
In the current environment, with the Dodd-Frank Act standing as an emblem of the problem, banking legislation and regulation has become overly politicized, in Clarke’s view.

 

“It’s always tough when the economy goes down,” said Clarke. However, the former regulator said that “this is the most hostile political environment I’ve ever seen, and the most hostile regulatory environment between banks and their regulators.”

 

At the start of the panel discussion, Clarke noted the irony that the convention was being held in the Henry B. Gonzalez Convention Center, named for longtime House Banking Committee Chairman Henry B. Gonzalez (D.-Texas), a frequent legislative foe. He recalled how he had once testified before Gonzalez that banks are not public utilities. The chairman stopped him and corrected him, pointing out that in his view, banks certainly were such.

 

“Unfortunately,” said Clarke, “there are still a lot of people in Congress who believe that.”

 

 

Regulatory process lacks due process
Both Powell and Clarke spoke to the issue of improving the application of the principle of due process to the bank examination and regulatory process. This discussion reflected the widespread view that in the current environment the federal banking agencies’ various ombudsman programs aren’t seen as terribly effective for banks.

 

Clarke suggested that regulators could help matters ease up simply by giving bankers an opportunity “to blow off a little steam.” For his part, Powell said greater dialog between regulator and regulated would help a bank simply say directly to a regulator, “I bumped my head, but I’m going back in.”

 

Both former regulators pushed for greater industry unity, noting that lack of a united front during the Dodd-Frank debate allowed politicians to impose new restrictions and heavier burdens on the industry while hiding behind “carveouts” for banks under $10 billion that many see of limited practical value.

 

Not to say that this is easy. “Sometimes you have to swallow a few things in order to get together,” said Clarke. He predicted that the 2012 elections could be an opportunity to obtain some regulatory relief. However, he noted that bankers would need to make their case.

 

“You have to explain what the banking business means to America, and what the Dodd-Frank Act means to the banking business,” Clarke said.

 

 

Don’t lose hope
When Christman asked for the pair’s final advice to bankers caught up in today’s troublesome atmosphere, caught between the aftermath of crisis and the implementation of Dodd-Frank, Powell said, “Stay the course and remember that this, too, shall pass.” Clarke concurred.

 

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