A recent article about a catfight between a state bank and its state regulator caught my eye.
State regulators say Joanne P. Gaines isn’t fit to serve on the board of Floridian Community Bank, but the Davie-based institution is pressing its case.
Gaines, a Cooper City resident, has been criticized by the Florida Office of Financial Regulation (OFR) officials. They allege she was involved in a plan by a church to illegally take over First Western Bank, of which she was CEO. That since-shuttered church was later accused in a federal indictment of running a Ponzi scheme.
Floridian Community Bank, in its case before an administrative law judge, said Gaines should be considered exonerated because she was not mentioned in the Federal Reserve’s action against those who wanted to buy First Western. The $80 million-asset Floridian Community wants the judge to set aside the OFR’s objections to putting Gaines on its board.
Gaines is the bank’s marketing director and a founding shareholder. The bank showed regulators letters of support she received from Mary Partin, CEO of the Dan Marino Foundation; Theresa Barbieri of Stiles Property Management; and former Davie Mayor Joan Kovac.
Gaines did not return several calls for comment.
I don't know who's right and who's less-than-right as to the facts of the particular dispute. I do know that it's relatively rare for a bank to fight tooth-and-nail to install a director over the objections of its primary regulator. Assuming that Florida's administrative process is fairly typical, the burden will be on the bank to show that the decision of the regulator is without a substantial basis or is arbitrary and capricious. The deck is usually stacked in favor of the regulator. That's why most banks, when faced with such objections, usually tell the proposed director "see ya," and go find another
sucker candidate to take his or her place.
A banking analysts agrees.
Miami-based banking analyst Kenneth H. Thomas said it is generally a bad idea to challenge regulators over a board member rejection unless that person offers a major capital infusion.
“Most bankers would never take it to this point,” he said. “They would just accept it.”
Regulators in general can subjectively get tough on banks by scrutinizing their books, and challenging them in court can draw their fire, said Thomas, who is on the faculty of the executive education program at the University of Pennsylvania's Wharton School of Business.
“We’re ultimately confident that Mrs. Gaines will prevail and be on the board of the bank,” said the bank’s attorney, Mark Freund, of Tallahassee-based Igler & Dougherty.
Well, maybe so, but as they used to say in the old Midas Muffler commercial: "Pay me now or pay me later." You may not die of a single sword stroke, but that doesn't mean that you won't eventually bleed to death of a thousand cuts made excruciatingly slowly over an extended period of time. Like elephants, regulators have long memories and they can make life miserable (and doing business-as-usual virtually impossible) in oh so many ways. I hope that this fight is worth the ill-will.