Last night's post prompted a thoughtful response from Tampa, Florida attorney Paul Phillips. Because I thought they offered insights that I found to be valuable, and because it allows me to drink Shiner Bock instead of blogging, I'm posting the gist of his observations as tonight's post.
Although I am now on my 10th administrative enforcement action against federal banking regulators, and 2nd against state – in the last three years - I am inclined to agree with your position. The regulators can have long memories and exact retribution; however, when they are made aware of the fact that they are acting arbitrarily and capriciously, you would be surprised how they react even without the influence of the courts. The discovery phase becomes very useful in leveling the playing field.
I have seen examinations with so many redlines – all done at the regional office level – that it looks like someone cut fish on the report. These changes effectively rewrite entire examinations. I have seen emails that verify – what most already believe - that asset quality is ENTIRELY based upon the ACA ratio without regard for ALLL levels or collateral protection. Even worse, I have seen “secret agency laws” that direct examiners to have Management ratings match the composite rating no matter how culpable management is for the bank’s problems (and those directives came from ARD’s and RD’s). When this type of information is produced in discovery, the true picture is made clear to both sides, which can alter the regulators attitude significantly.
Bottom line, there is an in-between. When bank management gets one story from the examiners, who are on the ground at the bank and diligently review the bank’s condition, and then regional officers and case managers, who have never step foot in the institution, change these determinations using ratio analysis and other quantitative assessments…well, perhaps it is time to stand up and find out where the disconnect occurred. Most bank officers and directors are stunned when a report of examination does not match what they were told at the exit exam; and many more are insulted when their management ratings are a reflection of the asset quality and not what management has done through this recession to keep the bank well capitalized.
The pendulum does not swing back without a little push.
Points well taken. I rarely urge institutions to assume a supine position vis-a-vis the regulators, and Paul reminds us that quite often "push back" is justified. My point last night was that there are ways to push back that don't involve digging a hole of hostility that you can't leap out of. I'm sure Paul would agree.