The nation’s chief savings and loan regulator, M. Danny Wall, said Monday that he is being falsely accused of impeding the government’s probe of Lincoln Savings & Loan by a disgruntled investigator who became too zealous in his pursuit of the Irvine thrift.
In an interview, Wall challenged recent testimony before the House Banking Committee of William K. Black, who argued that Wall had ignored the evidence of wrongdoing by Lincoln in 1987 when he rejected a recommendation that the federal government seize it.
Black was one of the federal regulators in San Francisco who recommended seizing Lincoln. Wall, who took over as chairman of the Federal Home Loan Bank Board in July, 1987, opposed Black’s recommendation on grounds there was insufficient proof in 1987 that Lincoln had done anything illegal. Wall still heads the bank board’s successor agency, the Office of Thrift Supervision.
Lincoln eventually was seized by the government last April--two years after Black’s recommendation for a federal takeover was rejected. It is estimated that the collapse of Lincoln will cost American taxpayers up to $2 billion.
The House Banking Committee hearings will resume today with testimony from Wall’s predecessor, Edwin J. Gray, who also has criticized Wall’s failure to crack down sooner on Lincoln. Although Wall and Lincoln owner Charles H. Keating Jr. had been scheduled to testify today, their testimony has been delayed until Nov. 21.
During the hearing last Tuesday, Black and his colleagues from San Francisco were hailed by Banking Committee Chairman Henry B. Gonzalez (D-Tex.) as “heroes” for their persistent efforts to initiate strict government action against Lincoln as early as 1987.
But Wall recalled that Black, who previously had worked in the Washington headquarters of the bank board, had a reputation in the agency as a renegade--someone who was “very bright, very intense and very skillful in building legal cases or legal justifications for whatever he wants to do.”
Wall and a top aide, Karl T. Hoyle, said Black’s recommendation was rejected in large part because Black appeared to be too anxious to find fault with Lincoln.
“Bill Black, in my opinion, prejudiced his own case,” Hoyle said. “He came across as a zealot.”
Hoyle was a member of the agency’s enforcement review committee, whose investigation found evidence to support Keating’s allegations that the San Francisco regulators were biased against Lincoln. The panel’s report on April 30, 1988, formed the basis for the board’s unprecedented decision to remove the San Francisco regulators from supervision of Lincoln.
Wall characterized Black’s testimony as the typical reaction of an employee who becomes disgruntled when his advice is rejected and his point of view later proves to have some merit. “It is a classic situation of the line people feeling that they knew more and that they have been vindicated,” he said.
Wall disputed several aspects of Black’s testimony. Specifically, he denied that William Robertson, director of the board’s office of regulatory policy, had formally endorsed the recommendation that Lincoln be seized in 1987.
To support his view, Wall produced a copy of Robertson’s July 23, 1987, memo. While the memo advocated seizure, it was not a formal recommendation and Robertson also offered to brief the bank board on all of the options available in dealing with Lincoln--including the possibility of removing supervision of the thrift from the hands of the San Francisco regulators.
Instead of ordering the seizure of Lincoln in 1987, the board headed by Wall initiated a second review of the case by investigators in the Washington headquarters of the Federal Home Loan Bank Board. That review eventually produced the so-called smoking gun--evidence that American Continental Corp., the holding company owned by Keating, was illegally looting Lincoln by collecting taxes from the thrift that were never owed or paid to the government.
Ironically, according to Wall, it has since been discovered that the San Francisco regulators had evidence of the so-called tax sharing arrangement more than two years ago, but failed to realize the importance of the information. He said the tax arrangement was first mentioned in an accounting report prepared for the regulators by Kenneth Leventhal & Co., dated Aug. 4, 1987.
Wall said the San Francisco office failed to call this finding to the attention of the board in Washington. “San Francisco overlooked it,” he said.
“If we had known what we had in that tax sharing plan, we would have had him (Keating) knowingly, or at least permitting, an illegal act to take place,” he added. “It would have changed the tenor of the whole thing.”
Wall also complained bitterly that his own testimony was being delayed by the committee and that certain witnesses favorable to him had been “disinvited” by the panel. He objected that he was not being given an opportunity to answer Black and other critics in a timely fashion.
Gonzalez has acknowledged that one of the goals of the hearings is to achieve the ouster of Wall, whom he blames for failing to act sooner in the case of Lincoln and many other thrifts that were making risky investments.