Major Business News

House Banking Chairman Accuses
Federal Regulators of 'Turf Battle'

By RICK BROOKS
Staff Reporter of THE WALL STREET JOURNAL

The chairman of the House Banking Committee accused federal banking
regulators of a "bureaucratic turf battle" that might have delayed their detection
of suspected fraud at First National Bank of Keystone, a West Virginia
bank shut down by regulators in September.

Rep. James A. Leach (R., Iowa) also criticized as "too weak and too late" a
string of enforcement actions and penalties levied against First National by the
Office of the Comptroller of the Currency, its primary regulator, prior to the
bank's closing. He added that the Federal Deposit Insurance Corp. should have
pressed harder to join the OCC's examinations at the bank.

                      The rebuke from Rep. Leach, who drew
                      comparisons between First National and the
                      decade-old failure of Lincoln Savings & Loan, the
                      rogue Arizona thrift run by Charles Keating,
                      comes as law-enforcement officials try to unravel
                      who is responsible for the spectacular rise and fall
                      of First National. The seizure of the bank, which
                      grew unusually quickly through high-risk lending,
represents the most costly bank failure since the savings-and-loan crisis.

Rep. Leach proposed legislation Tuesday that would give the FDIC chairman
greater authority to launch special exams of troubled banks such as First
National. He said the bill would help fix "potentially serious flaws in the federal
oversight system" highlighted by First National's failure. The measure isn't likely
to be debated until early next year.

OCC officials disagreed with Rep. Leach's remarks, saying as they have in the
past that their regulatory policing of the bank and cooperation with the FDIC
was as efficient as it could have been. "There was extensive communication and
coordination between the OCC and FDIC staffs regarding the handling of [First
National,]" an OCC spokesman said. "We regret if there was any
misimpression that that wasn't the case."

Donna Tanoue, the FDIC's chairman, said in a statement: "We hear Chairman
Leach loud and clear. Our independence is critical to our success. This
legislation would improve our ability to address risky banking practices and
protect the [bank] insurance funds."

Among the incidents criticized by Rep. Leach was a January meeting between
OCC examiners and bank officials that excluded the FDIC, despite the
agency's earlier request that it "be kept fully informed as insurer and backup
supervisor," he said. The meeting dealt with concerns about the bank's valuation
of certain assets. In response, the OCC spokesman said, "you must remember
that what led to the closing of the institution was fraud, which the OCC
discovered."

The Securities and Exchange Commission continues to investigate potential
insider-trading claims and accounting fraud at First National. And last week,
two top executives of the bank were indicted by a federal grand jury on
charges that they interfered with regulators during an exam at the bank.
 

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