Free Shell Game (Stand Alone 2) by Joseph Badal

the banks generate, meaning lower earnings and thus more difficulty in building additional capital.
    “Our ratios are eight percent and twelve percent, significantly above the guidelines. But the regulators have now ordered us to raise our ratios to ten percent and thirteen percent. Why? I don’t have a clue. Our examiner, when I asked her about this, in effect, told me it was none of my business how she made the decision.”
    “Couldn’t you appeal?” Edward interjected.
    “To whom?”
    “Her boss?”
    “Been there, done that. The guy was frothing at the mouth over me questioning one of his examiners.”
    “Then how about our Congressional delegation?”
    “Those gutless wonders are less than worthless. Ever since the Keating Five back in 1987 got into trouble, not one of those guys would stick his neck out to intervene on behalf of a banker in a pissing match with a regulator. Besides, they’re demonizing bankers. Haven’t you heard? The Great Recession is our fault.”
    “What was the Keating Five?”
    Snowden smiled at Edward. “Sorry. You were probably still in elementary school in 1987. The Keating Five was named for Charles Keating, Chairman of Lincoln Savings & Loan Association. Five U.S. Senators were accused of intervening in 1987 on behalf of Keating’s bank, the target of a regulatory investigation by the Federal Home Loan Bank Board. I don’t think the Senators ever thought they were doing anything wrong; they were just trying to get the regulators to back off a constituent they thought was being unfairly attacked.
    “But politicians have a long memory when it comes to political liability and no one wants to be accused of interfering in the regulator’s witch hunt against the big, bad bankers. The press, the President, Congress—they’re all demonizing the bankers.”
    “It sounds like things have gone too far the other way,” Edward said.
    “It doesn’t seem to matter. When it comes to the regulators, this isn’t a democracy. As Sol Levin told me, ‘I went to bed in America and woke up in the USSR.’ ”
    “What happened at Broad Street National is unconscionable. It’s a crime. The federal government stole that bank from its rightful owners, which included thousands of individual shareholders in Pennsylvania. Sure, the bank had some real estate loan problems, but nothing warranting the Feds going in and taking it over. I’ve talked with some of their people; I won’t tell you who, but I have absolute confidence in the people I’ve talked to.
    “One told me he discovered a major error in the calculations the OCC examiners used to determine the bank’s loan loss reserve. When he brought it to the examiner’s attention, the guy told him that it didn’t make any difference. That they’d just change one of the other parameters so they’d come up with the same result. In other words, these Gestapo agents came into a bank with a predetermined mindset and then forced the numbers to fit that predetermination.
    “Community banks like Broad Street and our bank here didn’t get us into this economic mess. It was the politicians, Fannie Mae and Freddie Mac, and the largest financial institutions that undermined the system. The FDIC, the Office of the Comptroller of the Currency, the Office of Thrift Supervision didn’t enforce regulations on the big banks; now, they’re taking it out on the community banks while the bastards at the big institutions get bailed out.”
    “So there’s nothing you can do?” Edward asked.
    “I am ashamed to tell you I can’t stand up to these people. They are in absolute control and I don’t know why. But I do have an opinion. I think the politicians screwed things up so badly with the pressure they put on banks and on Fannie and Freddie to make subprime loans, and the regulators were so unaware that they are now all in the same bed covering one another’s asses. They’ve made the bankers the fall guys, which is the same thing the politicians did