MORE "DIRTY" ANTICS BY GEITHNER AND HIS "CROOKED CRONY BANKS":

U.S. keeps bank files from state auditor

By Brenda Bell
AMERICAN-STATESMAN STAFF
Thursday, August 13, 2009

Records are needed to ensure adequate supervision of Texas financial institutions, official says.

For the second time in recent weeks, the Texas state auditor's office says it cannot determine whether a state financial regulatory agency has been doing its job properly because federal officials in Dallas refused to allow access to state records critical to the audit.

Now, State Auditor John Keel is asking for immediate release of the records, which his office originally sought five months ago.

The State Auditor's letter to the FDIC (pdf):
http://alt.coxnewsweb.com/statesman/pdf ... 09_sao.pdf

"Continued delay ... means that a federal regulatory agency is restricting the state's ability to oversee state agencies," Keel wrote Wednesday in a letter to Sheila Bair, chairwoman of the Federal Deposit Insurance Corp. Copies of the letter were sent to Treasury Secretary Timothy Geithner, chairmen of finance committees in Congress and members of the Texas congressional delegation, among others.

FDIC regional counsel Stephen Zachary told Keel in April that the agency did not find "just cause justifying disclosure."

At issue, Keel says, is the performance of the Texas Department of Banking, which supervises 290 banks that are FDIC insured — 89 percent of all state-chartered banks in Texas — and the Department of Savings and Mortgage Lending, which regulates 28 other commercial and savings institutions that are also subject to FDIC rules. All are primarily regional and local banking institutions, whose operations are periodically reviewed by state examiners who work in conjunction with the federal agency.

According to the Banking Department, the number of "problem" state-chartered banks is expected to more than double between January 2009 and August 2010, going from 24 to 54. The state defines problem banks as those that score at least 3 on a 5-point scale, with 1 indicating the strongest performance and 5 in imminent danger of failure.

Both state agencies say their cooperative agreements with the FDIC forbid the release of their examiners' confidential working papers without FDIC approval. The papers originated with and are maintained by the state agencies in Austin, which are part of the Texas Finance Commission.

After the FDIC denied Keel's request for the records, which are produced and maintained by the respective state agencies, the auditor made a second request, clarifying the information sought and promising it would remain confidential. There has been no further response from the FDIC.

"It's a little difficult for us to discuss it because it's still under review," said FDIC spokesman David Barr, adding that agency officials cannot recall another state seeking such documents in recent years. "To my knowledge, this is the first."

The reports include data on the banks' capital, asset quality, management, equity and liquidity — information necessary, said Keel, to help auditors assess whether the state's regulatory apparatus is working properly.

"This is new territory for us," he acknowledged.

At a time when the financial industry is in crisis, it's important to be able to trust the regulators so that "the citizens of Texas can have confidence in the banks where they have their money," Keel said. "Anytime you have an issue and you don't have access to records, you wonder what else is there."

Only one bank has failed in Texas this year, but another — Austin-based Guaranty Bank — is on the verge of being seized by the FDIC.

The Federal Reserve, which oversees 35 state-chartered banks not subject to FDIC rules, did permit access to the examiner reports for those banks, said Keel, as long as auditors did not copy the documents.

The disagreement with the FDIC surfaced most recently in the state auditor's report on the Department of Savings and Mortgage Lending, which was released Monday.

"Although auditors performed a limited review of the department's policies and procedures ... it was not possible to determine (1) whether the department applied these policies and procedures or (2) whether these policies and procedures were effective," Keel wrote in the report.

In July, his office issued a similar caveat with its audit of the Department of Banking.

Though both departments were found to be in overall compliance with state statutes and rules, the auditor said the lack of information made it impossible to tell whether they fully met their obligation to monitor the soundness of state-chartered financial institutions, including those in deteriorating financial condition.

The tug-of-war between the auditor and the FDIC is taking place as the Texas Legislature is about to give up some oversight of the state's financial regulatory agencies. A little-noticed bill passed during this year's session adds the Texas Finance Commission to the short list of agencies that bypass the normal appropriations process.

As of Sept. 1, the commission (with oversight over banking, savings and mortgage lending and consumer credit) will become the state's largest "self-directed, semi-independent" agency, with an annual budget of more than $27 million. Its funding is derived from fees levied on the thousands of companies it regulates, from banks to pawnshops to car dealers.

Supporters of the change say it enables the agencies to respond quickly to a crisis instead of waiting for legislative action. This year, the Banking Department waited several months for approval to hire more staff to deal with a backlog of bank examinations.

Agencies designated as semi-independent still file regular reports with the Legislature and are subject to state audits.

bbell@statesman.com; 445-3634

http://www.statesman.com/news/content/r ... 13sao.html