REGULATION

FDIC to allow Texas auditor to see banking records

Official says reversal of earlier decision will permit proper reviews of state agencies.

Reversing its earlier decision, the Federal Deposit Insurance Corp. has agreed to allow access to state banking examiners' records that State Auditor John Keel says are crucial to his office's oversight of Texas financial regulatory agencies.

The FDIC action means that Keel's office will reopen its recently completed audits of the Texas Department of Banking and the Department of Savings and Mortgage Lending. Both audits were compromised, Keel said, because some of the departments' records — which include confidential reports on the vast majority of state-chartered banks and savings and loans in Texas — were withheld by the FDIC.

The two departments were generally found to be in compliance with state statutes, but auditors could not certify that they were properly monitoring the soundness of financial institutions under their supervision, including those in deteriorating financial condition, Keel said.

"We will not do over what we previously did, but we can now meet our audit objectives because we have access to the files," Keel said Thursday. "We're going to proceed with our audits." The work should be complete in October, he said.

The sought-after files contain working papers produced during the examinations of hundreds of state-chartered, primarily regional and local financial institutions that are FDIC-insured, including 89 percent of the state-chartered banks in Texas. They include data on the banks' capital, asset quality, management, equity and liquidity, and could not be released without FDIC approval.

Keel acknowledged that the auditor's office was casting a wider net than it had in the past when assessing the performance of the state's financial regulatory apparatus. But he said it was necessary to review the records so that "the citizens of Texas can have confidence in the banks where they have their money."

Only one bank has failed in Texas this year, but another — Austin-based Guaranty Bank — is about to be seized and sold by the FDIC, and dozens more are in trouble. The Texas Department of Banking reports that the number of "problem" state-chartered banks is expected to climb from 24 to 54between January 2009 and August 2010.

State auditors may now review the examiners' papers but cannot make copies or make them public, according to the FDIC. The arrangement is similar to the one agreed to between the state auditor and the Federal Reserve, which oversees the 35 state-chartered banks not subject to FDIC rules.

Keel began asking for the records in March and received a rejection letter from the FDIC in April. He asked again later that month but received no reply.

Last week, Keel sent a letter to FDIC Chairman Sheila Bair and congressional leaders, urging immediate release of the records. "Continued delay ... means that a federal regulator agency is restricting the state's ability to oversee state agencies," he wrote.

Six days later, in a letter dated Monday, FDIC Associate Director Serena Owens acceded to the request.

"It took too long," said Keel. "This is the answer we should have received in March."

bbell@statesman.com; 445-3634