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Bankers Must Wash Hands Before Returning to Work
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Bankers Must Wash Hands Before Returning to Work

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Bankers Must Wash Hands Before Returning to Work

Hereís 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 departmentís website and get inspection information for each of the cityís 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 ďCĒ) so every customer who walks in can see.
About Jonathan Weil

Jonathan Weil joined Bloomberg News as a columnist in 2007, and his columns on finance and accounting won Best in the Business awards from the Society of American Business Editors and Writers in 2009 and 2010.
More about Jonathan Weil
With banks, you canít 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 Bairís new score-settling book, ďBull by the Horns.Ē 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: ďOn 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,Ē Bair wrote.

Deep Trouble
To my knowledge, this fact hadnít been disclosed before. A rating of ď4Ē is the FDICís second-lowest score and means a bank is in deep trouble. Under the five-point ďCamelsĒ scale, banks are rated on their capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk.

Some information about Citigroupís regulatory ratings did emerge when the congressionally chartered Financial Crisis Inquiry Commission released its final report and exhibits in 2011. But I couldnít find any reference to that specific rating when I searched the commissionís online archives this week.

And you know what? There has been no damage to Citigroup or the financial system as a result of Bairís disclosure.
Another example: On Page 168 of the book, Bair wrote that in early 2009, ďour FDIC examiners were aghast that the OCC had kept Citiís CAMELS rating at a 3 even though it had required three separate bailouts.Ē 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 examinersí views was confidential.

Larry Hughes, a spokesman for the bookís publisher, Simon & Schuster Inc., said in an e-mail: ďI ran this by Sheila -- she said sheís 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).Ē

Perhaps she is right. There are hundreds of hours of audio recordings on the inquiry commissionís website that I didnít listen to. However, her book didnít attribute the information about Citigroupís ratings or examination findings to any materials released by the commission. Even if Citigroup did leak the information, that wouldnít 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 FDICís website, the FDIC and other banking regulators said the agenciesí regulations prohibit disclosure of Camels ratings and other information contained in bank-examination reports.
Eliminate Secrecy

ďAny person who discloses or uses nonpublic information except as expressly permitted by one of the appropriate federal banking agencies or as provided by the agencyís regulations may be subject to the criminal penaltiesĒ laid out in federal statutes, the release said.

If Bair was authorized to discuss the information about Citigroupís ratings in her book, she hasnít explained how. But thatís not the main point here.
Examination ratings are just the kind of information that should be publicly available about every bank. So letís eliminate the secrecy. It damages our economy, undermines investor confidence and gives financial institutions too much leeway to go astray.

Regulators havenít 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, Bairís revelations do everyone a favor. Maybe if Iím lucky she will let me thank her over lunch someday, at a fine restaurant that got an ďAĒ for sanitation -- and next door to a bank with the same or equivalent grade in the window.


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