Here’s an idea for improving the regulation of banks: Treat them more like restaurants.
One of the great things about eating out in New York, where I work, is that you can go to the local health department’s website and get inspection information for each of the city’s 24,000 restaurants. So, for example, if you want to look up whether A+ Thai Place in Manhattan had rats during its last inspection, you can. (It did.) Eateries also must conspicuously post the grade they got (A+ Thai received a “C”) so every customer who walks in can see.
With banks, you can’t get report cards like this from regulators. And heaven forbid a U.S. lender ever wants to disclose its own supervisory rating to outsiders. The Federal Deposit Insurance Corp. has long said that is confidential information, the release of which can lead to criminal charges.
This brings me to former FDIC Chairman Sheila Bair’s new score-settling book, “Bull by the Horns.” What I found most surprising was how freely and openly she discussed the precise details of the supervisory ratings that had been assigned to Citigroup Inc. (C) at various times during the financial crisis.
For instance, on Page 170: “On May 26, 2009, our head of supervision, Sandra Thompson, sent a letter to William Rhodes, the CEO of Citibank, notifying him that FDIC examiners had downgraded Citibank to a CAMELS 4,” Bair wrote.
To my knowledge, this fact hadn’t been disclosed before. A rating of “4” is the FDIC’s second-lowest score and means a bank is in deep trouble. Under the five-point “Camels” scale, banks are rated on their capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk.
Some information about Citigroup’s regulatory ratings did emerge when the congressionally chartered Financial Crisis Inquiry Commission released its final report and exhibits in 2011. But I couldn’t find any reference to that specific rating when I searched the commission’s online archives this week.
And you know what? There has been no damage to Citigroup or the financial system as a result of Bair’s disclosure.
Another example: On Page 168 of the book, Bair wrote that in early 2009, “our FDIC examiners were aghast that the OCC had kept Citi’s CAMELS rating at a 3 even though it had required three separate bailouts.” The inquiry commission did release documents last year showing that particular rating by the Office of the Comptroller of the Currency. But it was news for Bair to say the FDIC examiners were aghast about it. I had thought that sort of information about examiners’ views was confidential.
Larry Hughes, a spokesman for the book’s publisher, Simon & Schuster Inc., said in an e-mail: “I ran this by Sheila -- she said she’s pretty sure this all came out in the FCIC report and was also leaked to the press (she suspects by Citi as she recounts in the book).”
Perhaps she is right. There are hundreds of hours of audio recordings on the inquiry commission’s website that I didn’t listen to. However, her book didn’t attribute the information about Citigroup’s ratings or examination findings to any materials released by the commission. Even if Citigroup did leak the information, that wouldn’t mean she had permission to publish it. I asked Hughes if he could point me to the inquiry- commission records that Bair was referring to, but he declined. A Citigroup spokeswoman, Shannon Bell, declined to comment.
In a joint 2005 press release still on the FDIC’s website, the FDIC and other banking regulators said the agencies’ regulations prohibit disclosure of Camels ratings and other information contained in bank-examination reports.
“Any person who discloses or uses nonpublic information except as expressly permitted by one of the appropriate federal banking agencies or as provided by the agency’s regulations may be subject to the criminal penalties” laid out in federal statutes, the release said.
If Bair was authorized to discuss the information about Citigroup’s ratings in her book, she hasn’t explained how. But that’s not the main point here.
Examination ratings are just the kind of information that should be publicly available about every bank. So let’s eliminate the secrecy. It damages our economy, undermines investor confidence and gives financial institutions too much leeway to go astray.
Regulators haven’t shown themselves to be any better than the markets are when it comes to uncovering big problems at federally insured banks. We might as well make all their examination findings open records. That way, the public can see when the regulators are failing at their jobs. Depositors can make fully informed choices about where to keep their money. And banks will be under much greater pressure to fix their problems.
Authorized or not, Bair’s revelations do everyone a favor. Maybe if I’m lucky she will let me thank her over lunch someday, at a fine restaurant that got an “A” for sanitation -- and next door to a bank with the same or equivalent grade in the window.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
Today’s highlights: the editors on the dangers of China-bashing in U.S. politics and on the Wheatley review of Libor; Jonathan Alter on fixing campaign finance; Stephen L. Carter on Washington’s outsize wealth; William Pesek on bringing the Olympics to Japan; Steven Greenhut on Chicago’s challenge to California on unions; Lawrence Sheets on the folly of ignoring Georgia’s elections.
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