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THE KANSAS CITY STAR
Lead Editorial Opinion
March 23, 1999
To see the March 22, 1998 editorial, click here
Federal Malpractice
Because of deposit insurance,
it's important that bankers maintain a healthy fear of regulators. The
loans they approve, after all, are government- insured--and taxpayer- backed--deposits.
But who regulates the regulators?
For southwest Missouri banker Glen Garrett, the answer to that question remains
unclear. Garrett spent $2 million of his own money fighting a case by the Federal
Deposit Insurance Corp., which hounded him relentlessly for eight years over
what amounted to a technical violation resulting in no loss to his bank.
Garrett's lawyer, Stephens Woodrough, suggests the case should prompt
congressional hearings. That makes sense. The FDIC acted with complete lack
of perspective. Last March, an agency spokesman even told a Star reporter that
it mattered little whether Garrett's methods resulted in lost bank money. Excuse
us, but if banks never incurred losses from inappropriate risks, the FDIC would
be out of a job.
Garrett's practices admittedly were informal. He built his own bank building
with his own hands, equipment and hired help. But that was no boondoggle, even
though he had no bids or contracts. The building was later valued at $300,000
more than its construction cost.
Investigators focused on six loans Garrett approved, the proceeds of which
repaid loans he made personally to the borrowers. All six were repaid with
interest. Investigators said Garrett should have notified his bank board that
he had a personal interest in those loans.
'This, said Garrett's lawyer, was in the end the FDIC's only complaint. Garrett
paid no fine and admitted no wrongdoing. For its part, the FDIC denies any
misconduct and claims to be pleased with the result.
At a congressional hearing lawmakers should begin by directing the FDIC to
determine how much public money it spent hounding a small-town banker for no
apparent reason. Then they should ask the agency to explain whether or not
those losses matter.
Copyright © 2003 The Banking Law Firm. All rights reserved.
Last revised: June 1, 2012.