The Federal Deposit Insurance Corp. has caused a stir in the banking industry by proposing to tear another major veil from the once totally secret world of bank regulation.
The agency, which regulates about 9,000 state-chartered banks, wants to make public any enforcement actions it takes against banks or bank officials. The FDIC said the step would give it another tool to enforce market discipline on banks "by subjecting banks and their managements to greater public scrutiny."
FDIC Chairman William M. Isaac and Comptroller of the Currency C. Todd Conover -- whose agency regulates 4,700 federally chartered banks -- have long supported increasing the amount of information banks have to disclose to the public so depositors and borrowers can make better judgments about the soundness and stability of the nation's banking institutions.
If the public knows a bank is being run poorly, the FDIC reasons, depositors will be reluctant to place their accounts with the bank, thus putting pressure on bank management to change its ways.
For example, regulators jousted continuously with Penn Square National Bank in Oklahoma City about its lending practices and poor management controls. But the bank's depositors and lenders knew little, if anything, of the supervisors' concerns. When the bank, with more than $400 million in assets, was closed in July 1982, many depositors were left in the cold because their accounts exceeded the $100,000 limit on federal insurance.
The failure of Penn Square eventually led to the de facto failure of Continental Illinois National Bank, which bought $1.1 billion in bad loans originally made by the Oklahoma bank. It took the biggest federal business rescue in history to keep the giant Chicago bank from closing.
The agency said that if enforcement actions were published in the Federal Register, the public could more easily evaluate "the level of risk that will be encountered in dealing with specific banks."
Neither the comptroller's office nor the Federal Reserve Board, which regulates 2,000 state-chartered banks that also are members of the Fed system, has weighed in with a similar proposal.
Most bankers adamantly oppose the FDIC proposal. The American Bankers Association said the proposal could prompt panic among depositors and lead to a more adversarial relationship between banks and regulators. The trade association also said this type of disclosure would not improve the safety and soundness of the nation's banks.
The Independent Bankers Association, made up largely of small community banks, has similar complaints. It says that in cases when the FDIC wrongfully cites a bank, neither management nor the bank itself may ever regain credibility.
One regulator said privately, "The cops sometimes make mistaken arrests too. But I've never heard anyone argue that arrests should be suppressed." FDIC MAY SELL FIRST PENNSY . . .
When the FDIC saved Continental Illinois in one of the most publicized and controversial business bailouts in history, it became that bank's biggest shareholder. Eventually the federal agency hopes to sell those shares at a profit.
In 1980, in a less publicized rescue, the agency obtained warrants permitting it to buy up to 6.5 million shares in First Pennsylvania Corp. at $3 a share. Today the Philadelphia bank company has regained profitability and the FDIC is thinking about selling those options. First Pennsylvania stock is selling at $7 a share and the agency could make a $26 million profit -- although if that many shares of the bank's stock came on the market at once, the price undoubtedly would fall.
The bank offered the FDIC $2.75 for each of the warrants last year, but the FDIC refused. Its officials said they preferred to sell them when they could make a bigger profit for the government. NEW FACE . . .
Charles E. Thacker, formerly associate director of bank supervision, has been appointed director of the FDIC's Kansas City region. In the next few years the region could be the hottest seat in the agency. It is, or soon will be, responsible for banks in Iowa, Nebraska, Kansas, Missouri, North and South Dakota and Minnesota. These are among the states hit hardest by the depression in agriculture and likely to see the most bank failures during the coming year or two.