Regulators Fume Over Loss of Authority in Lincoln Savings Case
For the top federal savings and loan regulator in California, the first sign of the bad news came suddenly. In an early morning phone call last May 5, James Cirona says, he was told by his bosses in Washington that they might strip his responsibility for overseeing controversial Lincoln Savings & Loan Assn. of Irvine.
Cirona refused to participate in the meeting by telephone. “I was upset by the fact that I wasn’t aware a meeting was going to be held. They were calling me cold at 6:15 a.m.”
But two weeks later, the word was official: The Federal Home Loan Bank Board took the unprecedented step of removing a case from the the regional authorities.
On Friday, the House Banking Committee heard testimony intended to shed light on the incident. The hearing came a day after Rep. Henry B. Gonzalez (D-Tex.), the committee chairman, complained that the regional officials in San Francisco were being muzzled.
In large measure, what the committee members heard was the anger of officials in California who were forced to relinquish their supervision of an S&L; to authorities in Washington.
“I don’t know why they did it--the decision reduces the credibility we have as a regulatory agency,” said Michael Patriarca, a subordinate of Cirona’s who is director of regulatory activity for the San Francisco home loan bank.
Harassment Complaints
Lincoln officials had complained that they were being harassed by the regulators from San Francisco. Their complaints coincided with a gradual but steady erosion of the San Francisco office’s authority. In April, 1987, four U.S. senators met with then-Bank Board Chairman Edwin Gray to express concern about the bank board’s treatment of Lincoln. The senators were Alan Cranston (D-Calif.), John Glenn (D-Ohio), Dennis DeConcini (D-Ariz.) and John S. McCain III, (R-Ariz.).
Gray said in an interview Friday that the senators indicated that they would help persuade Lincoln to make more home mortgages if the bank board would withdraw a requirement that limited the association’s outside investments. Gray said he refused to withdraw the regulation but later arranged for a meeting of the senators with regulators from San Francisco.
In August, 1987, examiners from San Francisco were prohibited from making field visits to Lincoln, said Rep. Nancy Pelosi (D-San Francisco). In October, 1987, Lincoln refused to have its books reviewed by an independent auditing firm, Pelosi said.
No Details
And last February, Lincoln managers successfully insisted that William Black, the general counsel from the San Francisco home loan bank, be excluded from a meeting of regulatory officials and personnel from the S&L.;
Darrel Dochow, executive director of the Federal Home Loan Bank Board’s Office of Regulatory Activities in Washington, said the removal of responsibility from San Francisco “is quite complex.”
“The situation was one of adversity. It was difficult for examiners (in San Francisco) to get cooperation out of the institution.”
Despite persistent questioning from members of the committee, Dochow refused to provide in public session any details of why Washington took responsibility from San Francisco.
Dochow said the hearings and publicity gave an unfortunate “perception of a cloud” over the bank board in Washington.
“You should have thought of that when you removed jurisdiction,” Pelosi said.
Rep. Richard Lehman (D-Sanger) said the bank board’s actions “look suspicious. You did what the institution wanted and not what its regulators wanted.”
Under a $288.75-million agreement disclosed last month, Lincoln is being sold to a group of Southern California investors headed by Spencer Scott, former chairman of Fidelity Federal Savings & Loan in Glendale. Federal regulators said after the agreement was announced that they had told Lincoln it did not have enough capital to support its operations, but officials of the S&L; disputed that position.
