S&L; Cleanup Chief to Quit Next Month : Regulation: In announcing his resignation, Timothy Ryan will blame the credit crunch on a “climate of fear” growing out of the thrift mess.
The nation’s top thrift regulator will announce his resignation today in a speech in which he will warn that the nation is suffering from a credit crunch because of “a climate of fear” generated by the savings and loan crisis.
Timothy Ryan says he will quit after 2 1/2 years as director of the Office of Thrift Supervision on Dec. 4. Ryan’s departure is not a surprise because he had previously announced plans to leave the post after the 1992 presidential election.
In a farewell address prepared for the annual convention of the Savings and Community Bankers of America in San Diego, Ryan says the S&L; crisis is making financial regulators, lenders and bank directors excessively nervous about taking risks. In its zeal to investigate S&L; abuses, according to Ryan, “Congress placed dedicated career government employees who were used to working behind the scenes into the public spotlight.”
“This created a climate of fear, and fear produced overly restrictive supervision which negatively impacted credit availability and restricted policy options,” Ryan says.
Lenders such as banks and thrifts are in the business of taking risks, making financial bets on the ability of borrowers to be successful and repay loans. In the past, if federal examiners saw a troubled loan at a well-managed bank or thrift, they would “give them a little slack,” Ryan said in a conversation with reporters in preparation for his speech. Since the collapse of hundreds of insolvent S&Ls;, “no one gives anyone any slack.”
Federal examiners are tough in scrutinizing loans, lending officers are nervous, and board members of banks and S&Ls;, worried about their personal liability, are telling the financial institutions to act very conservatively, Ryan noted.
“Honest directors and officers developed unwarranted fears of lawsuits, and went out of their way to limit certain types of lending, not as a rational business decision, but out of fear for their personal exposure,” he will tell the SCBA convention.
After struggling with the controversial issue for months, the OTS will issue guidelines this week spelling out the precise legal obligations of directors and officers in the current volatile climate, Ryan promised. “If they will meet their traditional responsibilities, including the exercise of loyalty and care, then we will not take action against them,” Ryan says in his prepared remarks.
For more than a year, Bush Administration officials have been exhorting federal bank and thrift examiners to be more relaxed and understanding in their approach to reviewing loans, and to consider the importance of economic recovery. But this advice has been generally ignored, and examiners have been strict in their interpretation of the regulations.
Rank-and-file examiners have in mind the vivid example of Robert L. Clarke, who was denied confirmation earlier this year for a second term as Comptroller of the Currency. The Democratic majority on the Senate Banking Committee rejected Clarke after accusing him of being lax in his regulation of several troubled Texas banks.
Ryan, 47, says he is leaving because the job of cleaning up the troubled S&L; industry has been largely completed. Ryan, an attorney, says he will pursue business interests but did not specify what those might be.
More than 730 failed thrifts with assets exceeding $400 billion have been identified by Ryan’s agency, seized and transferred to the Resolution Trust Corp., the federal agency that dismantles and disposes of the institutions and their assets.
Meanwhile, the government has kept its pledge to guarantee accounts up to $100,000 by protecting more than 22 million accounts with a total of $200 billion in deposits, he says.
Congress still needs to spend another $50 billion to finish the cleanup, according to Ryan. This includes $42 billion to cover the costs of S&Ls; seized but not yet disposed of, and $8 billion to cover potential losses from S&Ls; that could fail by 1994. The OTS has a watch list of 110 troubled institutions, Ryan says.
Congress refused to vote for the $42 billion before adjourning for the year, and the delay “has added at least $1 billion to the final cost,” according to Ryan, because ailing S&Ls; continue to operate and lose money.
The OTS director believes that the thrift industry, after having shed hundreds of troubled institutions, can regain health and prosperity through a “keep it simple” philosophy.
“This is a niche business--consumer banking with a housing emphasis,” he argues in his farewell speech. “Stick to what you do best. The whole world knows the consequences of the industry’s experiment in high risk investments,” he says, alluding to the reckless efforts of the 1980s, when some thrifts dabbled in junk bonds, glamorous restaurants, horse breeding and land speculation.
As a departing regulator, Ryan calls for an end to the pattern of multiple government overseers for the financial world, including the OTS, the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve Board.
“Our nation’s banks and thrifts need only one regulator, one insurer and one central bank,” he says.
