S&L; Regulators Improve Bitter Relations With Changing Thrifts
Federal savings and loan industry regulators, stung by criticism of their tactics and behavior toward S&Ls;, are busily restructuring supervisory operations in an effort to streamline procedures and improve their strained relations with the thrift industry.
The changes at the Federal Home Loan Bank Board in Washington and the board’s 12 district banks, which examine and supervise individual S&Ls;, are being welcomed by many in the industry. The restructuring comes at a time bank board officials are predicting that they will rid themselves by the end of 1988 of most of the 60 failed S&Ls; currently operated under government supervision--either by closing them down or selling them to other institutions.
California, with more S&Ls; than any other state, including eight of the 10 largest in the nation, also has the largest number--41--that have either been closed or are being operated by regulators. And more California S&Ls; can be expected to fail this year as bank board officials predict that a dozen or so thrifts will collapse nationally in the next four weeks.
The bank board’s new operations are being engineered mostly by top executives who have been hired recently from agencies that regulate national banks, particularly from the office of the Comptroller of the Currency.
New Professionalism
The former banking regulators--also being recruited from the Federal Reserve Bank and the Federal Deposit Insurance Corp.--have brought with them not only a new system but a new sense of professionalism, bank board officials say.
“Six directors of regulatory functions at the federal home loan (district) banks are from outside the savings and loan industry and the bank board system,” said Darrel Dochow, a long-time executive at the comptroller’s office who now heads a new bank board division overseeing national S&L; policy and supervision.
“That has forced an attitude change--to know that regulation exists to keep a strong and competitive industry, not that regulation exists to be a policeman,” he said.
Many of the changes are aimed at quelling S&L; discord vented at past industry conventions and in the news media.
On the national level, the restructuring--which still is in progress--so far has taken the form of delegating more authority to the district banks while beefing up the bank board’s watchdog efforts over how the district banks operate.
In the 11th district, which includes California, most of the restructuring was completed six months ago under the direction of Michael Patriarca, another former comptroller’s executive and now head of the 11th district’s regulatory functions.
Patriarca has merged two key divisions that often had worked at cross-purposes and has created a new way of diagnosing the financial health of S&Ls.;
The diagnostic method, called a risk profile, evaluates the strengths and weaknesses of each institution to gauge its ability to successfully handle the kinds of business activities it is pursuing.
The risk profiles recognize something regulators have been reluctant to acknowledge before--that financial deregulation allows S&Ls; to do other things besides mortgage lending. A small, but growing, number of S&Ls; now are actively involved in construction, consumer lending, real estate management and other non-traditional activities.
The new method also backs away from the heavy reliance on rules that treat all institutions the same regardless of their expertise or performance, Patriarca said. The change in emphasis essentially is a change in the mind-set of regulators, he said.
Audit Division Merged
“Instead of approaching each institution and doing the same thing,” he said, “we’re identifying where we ought to put our resources by where we perceive the risk.”
Patriarca’s other major change was to merge the division that audits S&Ls; with the division that supervises them.
It was not unusual in the past, he said, for bank board examiners to tell an S&L;’s management to take one particular course of action based on their view of an audit while supervisory agents--basing their decisions on other items in the same audit--would order the institution’s managers to do something entirely different.
On the national level, Dochow heads a new bank board division--the office of regulatory policy, oversight and supervision--aimed at making supervision uniform throughout the country.
In about two months on the job, he has helped to create three new tools to facilitate his goals. These include an internal review system and a set of national standards for examining and supervising S&Ls.; In addition, a supervisory unit was created to review district banks’ handling of those failed S&Ls; operated by managers the bank board has retained while its regulatory staff tries to find solutions for the institutions’ problems.
Officers at some savings institutions have noticed the changes already, and they like what they’re seeing.
“Communication is much easier now,” said James Giraldin, president of the Irvine City Savings, a traditional S&L; with $82 million in assets.
“We’re getting questions answered much quicker, and regulators are processing applications in about half the time they used to.”
More Tolerance
At Western Financial Savings Bank, an Orange-based institution with $1.6 billion in assets, President Stephen W. Prough said he has noticed that moving the regulatory supervisor over his S&L; to Los Angeles from their San Francisco headquarters “makes it a lot easier for us to call on him and for him to come out and see us.”
Those at less-traditional S&Ls;, like the $152-million-asset Sterling Savings in Irvine, where a home construction subsidiary provides about half the revenues, no longer face heavy-handed criticism and demands that they fall in line with the way savings and loans have always operated.
Edwin J. Gray Jr., the previous bank board chairman who left office in June, often reprimanded S&Ls; in public speeches for straying from traditional mortgage lending even though state and federal laws allowed institutions to do other things.
“Examiners were down here about five months ago, and they were better informed about our institution and more articulate than in previous audits,” said Mark Child, Sterling’s executive vice president. “They’re looking at economic issues--like asset quality, capital quality and classifying assets--not just at regulatory issues.”
Even giant Lincoln Savings, the $4.6-billion Irvine-based S&L; that regulators have been auditing for the past 18 months, finds solace in the new approach.
Lincoln is owned by an Arizona company whose president, Charles H. Keating Jr., had been a major critic of Gray’s administration and had embraced industry deregulation--advocating greater freedom for S&Ls; in making direct investments. He and Gray had been in a running feud for much of Gray’s 2 1/2 years in office.
Now, a Lincoln spokesman said, “we feel there’s a tremendous improvement by the bank board as new, progressive, constructive leadership has taken charge. They have created an atmosphere for the industry that is both necessary and productive, and we welcome it.”
