Ex-Regulators of Irvine Thrift Tell of Shakeup

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 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 2 weeks later, the word was official: the Federal Home Loan Bank Board took the unprecedented step of removing a case from the local authorities.

On Friday, the House Banking Committee heard testimony intended to shed light on the incident. The San Francisco-based regulators were given permission to answer congressional questions by M. Danny Wall, the Federal Home Loan Bank Board chairman, a day after Rep. Henry B. Gonzalez (D-Tex.), the committee chairman, complained that the San Francisco officials 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 ailing S&L.;

“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.

Lincoln officials had complained that they were being harassed by the regulators from San Francisco. Their complaints led to a gradual but steady erosion of the San Francisco office’s authority. In April, 1987, four U.S. senators met with then-Federal Home Loan Bank Board Chairman Edwin Gray to express concern about the 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-Arizona).

Gray said in an interview Friday that the senators indicated that they would help persuade Lincoln to make more home mortgages if the federal 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.

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.;

The oversight responsibility for Lincoln is now being handled by Washington. Personnel from various parts of the country are performing the examinations once handled by San Francisco. There is a lead examiner from Seattle and special examiners from Pittsburgh, Chicago and Minneapolis who have been looking at Lincoln’s records, according to Darrel Dochow, executive director of the Home Loan Bank Board’s Washington Office of Regulatory Activities.

Dochow 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 for its actions.

“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.”

Cirona, the San Francisco bank president, said that Federal Home Loan Bank Board member Roger Martin told him that Lincoln had supplied a file with information “very damaging” to Cirona. Cirona said that he asked to see the file but that Martin declined to show it to him and apparently returned it to Lincoln.