Rough Time for Out-of-Work Bankers: Former Execs of Failed or Troubled Banks Face Hurdles to Being Hired Elsewhere

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Officially, CAMELS ratings are known only by the bank, its regulators, and one or two other confidential players. But the occasional hint gets on the grapevine.

Case in point: A de novo banker looking for a chief credit officer would get calls from headhunters pushing candidates, who, along with the bona tides of the banker, would add, "This individual is 'approvable'."

What this banker was being told, subtly, was that there wouldn't be regulatory pushback (or worse) if the bank hired the executive.

At issue was Section 32 of the Federal Deposit Insurance Act. Under the act, approval must be sought (30 days in advance) for the proposed addition of a director or a new senior executive officer if a bank is covered. Covered institutions include: a bank not in compliance with minimum capital requirements or "otherwise in troubled condition," or a bank that is subject to a plan executed under prompt corrective action. (De novo banks may be subject to similar review.)

The bank just mentioned informally ran a name by its federal regulator. The word came back, "Please don't formally propose this candidate." The candidate was from a bank with a poor CAMELS rating, and the agency deemed it would have reasons to disapprove.

There is no formal standard holding that such bankers are ineligible for employment by banks covered by such restrictions; each situation is handled case by case. Reviews, however, have been rising since the crisis. …