Ten Years After

It was ten years ago. I was handed an important role in our bank, that of Community Reinvestment Act officer. The Community Reinvestment Act was a federal program that was birthed under the Carter Administration. In essence, the Federal Government’s feeling was that if they are providing banks with FDIC insurance, insuring all of our deposits then we owe them the proof that we are lending on homes in all neighborhoods in our cities, not just the best ones.

When Clinton became President, he took the CRA to a whole new level, measuring our performance in 4 distinct levels and announcing that if we failed their standards our applications to build new branches would not be approved.

The concept and concern were well founded. I hired a team of bright Hispanic people and we scoured our branch system to be sure we were finding every way possible to prudently make loans to low or moderate income families. We had some success but in Eastern Washington, our opportunities were not as great as they were for lenders in say, Chicago or Los Angeles.

Eight months after I inherited the job, the next FDIC audit came and we were examined for our results. At the exit interview, the examiners took me, my crew, the bank, and our whole Board of Directors to task for not doing enough. I was the one with the big target on my back. The young FDIC auditors were not impressed with our explanations that we really had a problem with making home loans to people who were not credit worthy. If we wanted to grow our bank with new branches we would figure out a way, just like some of our competitors were doing.

After the very contentious meeting, the lead examiner and I met privately and he gave me his best advice on how to improve our CRA performance level. We talked for about an hour and then he reached into his briefcase and opened up a confidential file for me to see. He said there was a model institution that they had just examined that got an excellent CRA rating. If I could get our bank to emulate them and adopt similar programs to lower our benchmarks for loan approval, we would also get an excellent rating. He opened up the file and showed me the facts and information on their model institution, Washington Mutual.

With the closing of Washington Mutual’s doors on Friday, they established another new record; that of being the largest bank to ever fail. The failure was directly related to record defaults in their huge mortgage portfolio.

I would like to find that FDIC examiner for another conversation.