Gonzalez Launches Intensified Probe of Lincoln Savings

Times Staff Writer

House Banking Committee Chairman Henry B. Gonzalez (D-Tex.), calling the collapse of Irvine's Lincoln Savings & Loan a "mini-Watergate in federal financial regulation," announced Monday a renewed and intensified investigation of the crippled S&L; and its political activities.

The government's failure to take over Lincoln promptly gave the insolvent institution time to lose an extra $1.5 billion, Gonzalez said. "It is important that the public and the Congress know why it happened and specifically who was responsible," he said.

Gonzalez is pressing the probe despite the potential embarrassment for important Democrats, including Sen. Alan Cranston of California.

Charles H. Keating Jr., chairman of Lincoln's parent firm, American Continental Corp. of Phoenix, and various associates gave substantial campaign contributions to Cranston and other senators, including John Glenn (D-Ohio), Dennis DeConcini (D-Ariz.) and John McCain (R-Ariz.).

Gonzalez held hearings in January on the abrupt decision in 1988 by regulators in Washington to wrest responsibility for Lincoln from federal regulators in California. The Federal Home Loan Bank Board, which then regulated S&Ls;, seized Lincoln last April.

Gonzalez also planned to look into a flurry of sales of insolvent S&Ls; that was engineered by the bank board in December, just before the expiration of tax advantages enjoyed by the purchasers of such institutions.

The hearings were sidetracked when President Bush proposed emergency legislation in early February to rescue failing S&Ls; and make good on federal deposit insurance. He signed a bailout bill into law earlier this month.

Too Generous in Deals

"In order that the emergency legislation could be moved rapidly, we were forced to suspend oversight of the December deals and other regulatory giveaways," he said. "However, we would be derelict in our responsibility if we allowed these questionable deals and regulatory actions to go unchallenged simply because we had passed the legislation."

Gonzalez said the bank board was too generous in the sales of failing S&Ls; at the end of last year. The bank board, which was absorbed into the Treasury Department as part of the S&L; bailout bill, arranged costly deals that "could lead to the need for the expenditure of more public funds," Gonzalez said.

Gonzalez has a long-standing interest in the problems at Lincoln.

"We have been gathering material for a long time and have kept monitoring the situation," said a committee staff member. "This has been something the chairman has been wanting to get to the bottom of ever since he heard about it. Once and for all he wants to find out everything that happened."

Gonzalez is particularly interested in the reasons for delay in regulatory action at Lincoln. As early as May, 1987, the San Francisco Federal Home Loan Bank recommended to Washington that a receiver or conservator be appointed for Lincoln, according to information obtained by the Banking Committee.

"We already know that at least $1.5 billion has been lost in the Lincoln fiasco with more to come as the mess is cleaned up," Gonzalez said. "Lincoln remains a mini-Watergate in federal financial regulation."

Complained of Examination

Sens. Cranston, Glenn, DeConcini, and McCain met with the top federal S&L; regulators in 1987 in a vain effort to withdraw a regulation opposed by Lincoln. "I was flabbergasted that four U.S. senators would ask a regulator to withdraw a regulation," Edwin J. Gray, then chairman of the bank board, said earlier this year.

A fifth senator, Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.), joined his four colleagues in a subsequent meeting with other bank board officials to complain about the examination of Lincoln by the Federal Home Loan Bank of San Francisco.

In addition to the probe of Lincoln, Gonzalez said his committee will be watching the work of the new Resolution Trust Corp., which must dispose of the assets of insolvent S&Ls; seized by the government.

"Much of (Resolution Trust's) early efforts must be directed at an orderly disposition of the billions and billions of dollars of assets obtained from failed institutions," the Banking Committee chairman said.

He pointed out that the disposition of the assets will have a heavy impact on the federal insurance fund that protects S&L; deposits of up to $100,000. "We are particularly conscious of the problems in Texas, where so many of the assets are located," he said. "How this function is handled will have much to do with the state's economic recovery."

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