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THE KANSAS CITY STAR
Lead Editorial Opinion
March 22, 1998
To see the March 23, 1999 editorial, click here
Federal Malpractice
Bank Examiners Out of Control
As long as deposit insurance exists,
it is necessary to have close regulation of banks to diminish the potential
risk to taxpayers. But the behavior of Federal Deposit Insurance Corp.
in a southwest Missouri case is less than reassuring.
The bank examiners probably never saw the likes of farmer and banker Glen Garrett,
who lends money on a handshake and even physically built his own bank building,
using his own labor, his own hired hands and his own equipment. That was one
of the things that drew in the regulators. They wanted to see the bids and
contracts for the building. There weren't any.
Garrett's operation, the First State Bank of Purdy, has been scrutinized in
no less than four separate examinations, and while regulators found that he
some- times handled things too casually, they uncovered no losses of tax-payer-backed
deposits.
The U.S. attorney declined to follow up on a criminal referral, and a former
FDIC official - now serving as an expert witness in the case - believes the
agency has hounded Garrett long enough. Moreover, Garrett's lawyer [Stephens
B. Woodrough] says the value of the bank building Garrett built turned
out to be $300,000 more than what it cost to build it - meaning Garrett's hands-on
informality saved money.
But the FDIC, no doubt frustrated by its inability to uncover some great crime,
refuses to let the matter die. Six loans were seen as questionable. All were
paid back with interest, but Garrett was given the choice of paying a $25,000
fine and signing a document implying wrongdoing, or fighting it out. He chose
the latter. So far he's spent more than $1 million.
In an example of infuriating bureaucratic illogic, an FDIC spokesman says it
makes no difference whether or not Garrett's methods incurred losses. Garrett
admits he didn't do things by the book, but the FDIC's stance makes little
sense. It ought to make great deal of difference whether losses were incurred.
When Congress enacted the S&L bailout program in the late 1980s and approved
certain reforms in the system of banking regulation, it was expressing a great
deal of faith in the regulators' ability to maintain the safety and soundness
of the banking system. If nothing else, the FDIC's performance in the Garrett
case suggests how easily the agency can lose all sense of perspective. This
is how it chooses to deploy scarce resources?
How much money have taxpayers lost in a protracted exercise to soothe examiners'
wounded pride?
Copyright © 2003 The Banking Law Firm. All rights reserved.
Last revised: June 1, 2012.