Magazine article American Banker

A Strong Hand at FDIC Is Vital to Preserving Its Independence

Magazine article American Banker

A Strong Hand at FDIC Is Vital to Preserving Its Independence

Article excerpt

On paper, the Federal Deposit Insurance Corp. is an independent agency, which means it is sanctioned to respectfully disagree with the duly elected powers if that's what it takes to maintain the safety and soundness of the banking system.

During the last 30 days, however, the muscle-bound banking agency has turned into a snivelling suboffice of the Treasury Department. That could turn out to be bad for taxpayers.

Ludwig Taking Control

Comptroller of the Currency Eugene Ludwig, the ranking Treasury official and only permanent appointee serving on the FDIC's board, has seized power and has been running the place like Peru's Alberto Fujimori. He's rejected recommendations by the agency staff on several occasions, most notably suggestions for a set of hardnosed auditing rules.

Mr. Ludwig, a buddy of President Clinton's, acts with no fear of public challenge from his two fellow board members, who are the bureaucratic equivalents of office temps.

Acting FDIC Chairman Andrew C. Hove Jr. doesn't want to rock the boat because it might jeopardize the slim chance he has to be reappointed.

Jonathan Fiechter, acting director of the Office of Thrift Supervision, an official Treasury agency, also has higher aspirations. (The board consists of a chairman, a vice chairman, a director, the comptroller, and the director of the OTS. Two of the five must be of a political persuasion opposite the President's.)

Siding with the Industry

The current state of affairs at the FDIC hasn't upset the banking industry for a couple of reasons. First, most of what Mr. Ludwig has ordered so far has been in bankers' favor.

For example, he's seen to it that auditing rules that were perhaps overly tough and ridiculously expensive are fashioned into very flexible guidelines, in keeping with the President's promise to provide the industry with regulatory relief. …

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