FDIC Head May Get More Power Tuesday, Nov. 16, 1999; 6:35 p.m. EST

WASHINGTON  The head of the House Banking Committee, concerned by a $750 million hit to the federal insurance fund from the failure of a West Virginia bank, is proposing legislation to give the FDIC chairman more authority over troubled banks.

The proposal submitted Tuesday by Rep. Jim Leach, R-Iowa, was prompted by the recent failure of First National Bank of Keystone, a large bank based in Keystone, W.Va. Its collapse has caused the Federal Deposit Insurance Corp.'s biggest annual loss since the regional banking crises of the early 1990s, the agency has said.

"The Keystone case reveals some potentially serious flaws in the federal oversight system," Leach said in a statement.

He said the estimated $750 million loss to the insurance fund could make the Keystone bank's failure one of the 10 most expensive ever in this country and "one of the most spectacular" with losses approaching 70 percent of the bank's assets.

Federal regulators, who closed the bank in September, said they found "evidence of apparent fraud that resulted in the depletion" of its capital. They alleged, for example, that $515 million in loans fraudulently remained on the bank's books after they had been sold.

The FDIC now controls the bank's assets.

Leach said there are indications the regulators may not have properly supervised the bank when it engaged in risky financial strategies.

He said it appears the FDIC was "stymied at key points" in its desire to examine the bank's activities, and that the FDIC and the Office of the Comptroller of the Currency  the Treasury Department agency that oversaw the bank  "failed to cooperate closely."

Noting "tension" between the two agencies over Keystone's financial troubles, Leach said, "Instead of welcoming FDIC expertise and assistance in analyzing the increasingly complex operations of the bank," the comptroller's office initially denied the FDIC's request to participate in an examination of the bank.

To correct potential flaws in the system, Leach's proposed bill would give the FDIC chairman new authority in special circumstances to order the agency's examiners to inspect troubled banks.

Under current law, that authority resides with the FDIC's board of directors, which includes the comptroller of the currency.

Robert Garsson, a spokesman for the comptroller's office, said "There was effective communication and coordination between the FDIC and the (comptroller's office) staff regarding the handling of Keystone. We regret if there was any misimpression that that was not the case."

"It's important to remember that what led to the closing of this institution was fraud, which the (comptroller's office) discovered," Garsson said.

Spokesmen for the FDIC didn't immediately return a telephone call seeking comment.

With Congress rushing toward its annual year-end adjournment, action on Leach's proposal won't occur until next year.

The bank insurance fund backs each account up to $100,000, and currently contains $29.8 billion.

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See previous threads:

Possible Bank Failure

O.T. U.S. Shuts Bank for fraud?

FDIC sees big losses from US bank failures

FDIC Second-in-Command Resigns Abruptly

New York Fed details Y2K liquidity measures

-- Linda (lwmb@psln.com), November 17, 1999

Answers

---lemme get this straight. someone's stolen taxes go to bailout the bank accounts and the bank itself someplace where I have no business. What a scam. the only reason I use banks is that I can't get paid in cash. it's in and out for me. and i'd rather have silver or gold coin, and i bet that's coming. --hope everyone is prepared for the possibility-the POSSIBILITY-of all of a sudden waking up one day and what you thought of as your hard earned loot just going poof off into some electronic fanatsy land. ---get stuff, it's real, zog

-- zog (zzoggy@yahoo.com), November 17, 1999.

Obviously, the auditors didn't do a thorough enough job...

-- Mad Monk (madmonk@hawaiian.net), November 17, 1999.

Zog...

.....I've read a goodly number of your posts lately, and I can only come to one conclusion about you. If I ever met you in person, we'd probably turn into the best of friends.

-- Patrick (pmchenry@gradall.com), November 17, 1999.

Patrick,

Unless, of course, he thought you were coming for his supplies...

-- Halt! (Ka@Pow.Thud), November 18, 1999.

Unless, of course, he thought you were coming for his supplies...

-- Halt! (Ka@Pow.Thud), November 18, 1999.

Halt...

.....I am not a predator, I'm a preparer. Also, I think one would have to be an idiot to go after anyones preps, (as well as for failing to prep oneself). However, I do know tongue-in-cheek when I see it. (:^o

-- Patrick (pmchenry@gradall.com), November 18, 1999.