In response to a couple of posts last week about the high cost and uphill nature of fights against federal regulatory enforcement actions, a reader sent me a link to evidence that a small Arkansas thrift proved that even the George Baileys of the world can occasionally fight city hall and "win." What's even more surprising in the case of Priority Bank is that the OCC's Ombudsman demonstrated that his office is good for something more than due process window dressing.
Priority Bank successfully appealed findings contained in the May 9, 2012, notice of charges for an order to cease and desist, according to an insider.
The outcome of that shrouded internal review process indicates the OCC's Office of the Ombudsman ruled in favor of modifying, for the better, Priority's CAMELS examination ratings.
The linked article, written by Arkansasbusiness.com reporter George Walden, indicates that the thrift might have been subject to some "unfair and unbalanced" supervision by the local OCC office.
The jurisdiction for the regulator-lender dispute was transferred out of the OCC's Little Rock field office and its Dallas district office all the way back to headquarters in Washington, D.C. Why?
Priority Bank successfully argued that it was being unfairly treated, and the prejudicial bias flowed from something akin to personal animosity. That, at any rate, is the perspective of an informed source.
I'm an uninformed source, so I'll have to take that insight at face value, at least for the time being.
A number of bankers and lawmakers have been pushing for the creation of a truly independent office of ombudsman for the federal banking agencies. I think that's a good idea and the regulators think it's a lousy idea. No surprise there. In this case, it appears that the ombudsman's office did its job effectively. However, an exception to the rule does not convince me that reforms are not required to ensure more due process for banks and affiliated persons.
Another reader, an attorney who defends banks in enforcement actions, opined that "Judge Miserendino [the administrative law judge who hears enforcement actions of the federal banking agencies] has begun to take the Siedman, Gulf Federal and Kaplan views of unsafe or unsound, which is making agencies think twice on some of their cases. I believe we will begin to see a few more cases being dropped as a result of Adams." The "Adams" decision is the one discussed in this recent post. The three decisions he cites arose out of the wave of thrift failures in the late 1980s and early 1990s, and put some borders around the breadth of regulatory discretion to interpret what's an "unsafe and unsound" banking practice.
I hope that my correspondent is correct. Regardless, it won't change the overbearing cost of defending such actions, nor am I convinced that it will substantially alter the willingness of regulatory agencies to commence and pursue questionable enforcement actions and use defense costs as an incentive to squeeze a settlement out of defendants, regardless of the actual merits of the claims made.