Is BOk on FIRREA?
Interesting story in today's Whirled about BOk and the loan to the Tulsa Industrial Authority (TIA) that the Tulsa Airports Improvements Trust (TAIT) guaranteed. The loan money was ultimately used to finance Great Plains Airlines, which went bust despite massive taxpayer subsidies. The FAA ruled that the plan to repay the loan in the event of a default -- raising passenger service fees to purchase a part of the land on which Air Force Plant No. 3 sits for a runway extension -- would be an illegal direct subsidy to an airline.
The Bank of Oklahoma is seeking to recoup from a national auditing firm more than $9 million in losses resulting from a loan it made for the now-defunct Great Plains Airline.The bank sued PricewaterhouseCoopers LLC on Monday in Tulsa County District Court.
Its lawsuit claims that the firm presented financial statements that unfairly represented the "unrestricted" assets of the Tulsa Airports Improvement Trust, on which the bank relied in deciding to participate in the Great Plains loan.
So why didn't BOk go after PricewaterhouseCoopers LLC in the first place? Why did they demand that the City of Tulsa repay the money when some other organization was responsible for the bad loan? (The whole deal was designed so that the City itself -- the general fund that pays police officers and firefighters and other city employees -- would not have any exposure in the event that the airline failed.)
Back when former Mayor Bill LaFortune was trying to get the City Council to agree to repay the loan, I heard a theory about the situation that made sense to me.
Here is the theory, which is speculation based on this person's observations of public behavior and his knowledge of bank loans: BOk made the loan knowing that it wasn't properly secured, but with an unofficial assurance from then-Mayor Susan Savage that the City of Tulsa would make good if anything went wrong, an assurance that she was not in a legal position to make. It would have been a political promise: If it comes to that, we can get the Council to agree to cut BOk a check. To make such a loan without valid collateral would have been in violation of FIRREA, the 1989 lending reform law that was enacted in response to the Savings & Loan crisis, but as long as the loan was repaid no one would notice. No harm, no foul. When the loan went into default, BOk was frantic to get its money back to prevent the possibility of FIRREA enforcement.
That's the theory. FIRREA was created to hold bankers responsible for how they handle federally-guaranteed deposits. In the '80s, S&Ls made all sorts of risky loans safe in the knowledge that if the loans went bad, the FSLIC would take care of depositors. As I understand it, if a banker authorizes a loan without sufficient justification, and the loan goes bad, the bank can be penalized under FIRREA, as can individuals involved in making the loan -- bank CEOs and VPs, appraisers, attorneys, accountants.
Remember what would have happened if the City Council had authorized the payment to BOk for money the City of Tulsa did not owe: Individual city councilors would have been subject to liability under a qui tam action for essentially giving taxpayer money away. (E.g., if all my friends on the City Council voted to use city general fund money to pay off my minivan loan -- in recognition of my many services to the community -- they would be misusing public resources, and they ought to be removed from office.)
BOk has a reputation for being civic-minded, but it looks like BOk management's first inclination in response to this bad loan was to cover their own exposed posteriors by using the Mayor and the newspaper to pressure city councilors into dropping their own drawers.
Comments from those familiar with federal lending regulations would be especially welcomed.
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I'm not in the banking industry, but I've known a few people who are and who've given me and earful.
Part of the problem is that banking industry regulations were relaxed in the 1980s. The repercussions of that move are still being felt today: the S&L scandal, derivatives, MCI, Enron, et al.
Instead of using good sense and financial basics, a loan can be approved if a loan officer wants it bad enough for whatever reason. Most people in banking are smart and won't do overly risky loans. But all it take is a few rogues to really mess things up.
Just watch "Enron: The Smartest Guys in the Room" to get a good taste of this. Anyone with common sense can see that making loans using rising stock value alone as collateral is insane. But more than a dozen banks loaned money to Enron anyway. The fact that Enron was known to bully lenders and stock brokers if they weren't supportive enough of the company didn't help.
A contributing cause of the Great Plains Airlines taxpayer-financed fiasco is the in-bred, favors-trading network of the same, continuous group of toadies, henchmen and bagmen on our city boards, authorities, and commissions who act at the beck and call of and do the bidding for the local power establishment. Period.
Creatures like James Cameron & Lou Reynolds, Jim Orbison, Bob Parmele, Norma Eagleton, Howard Barnett, etc. are salted on our local board, authorities and commissions for this reason and this reason alone.
The result is the continous consciousless fleecing of the Tulsa taxpayer to serve the financial interests of the local controlling power Oligarchy.
GPA, Vision 2025, 4-to-Fix-the-County, G.O. Bond elections, etc., etc. etc., are all just symptoms of the problem. That's why we've got sky-high sales tax and the highest Ad Valorem tax rate in the state.
NO CHECKS AND BALANCES over the power elite USING their power to PROTECT and BUILD their wealth: THAT is the problem.
They LIKE things just the way they are.
Most people do not understand about the Qui Tam. The Qui Tam is one of a very few ways to hold your elected officials personnally responsible for misspending tax payer money. It holds the elected official financially responsible from their own personal insurance. They can not use city taxes to pay this bill,it is totally out of their own pocket. This is why citizens for fair and clean gov. filed the Qui Tam against the mayor and city council to prevent them from paying a debt the citize4ns did not owe. We the people with this kind of knowledge can stop alot of corruption in this town if we would join together in the fight to keep from being lied to and being taken for fools. Which the GOBs and GOGs do all the time. PLEASE TULSA WAKE UP,ITS NOT TO LATE YET.
Michael, as you know, I work in the banking industry. FIRREA is most commonly applied when banks make real estate-secured loans that require appraisals. Appraisers now must used standards the comply with FIRREA. Banks all have internal loan policies that establish L-T-V (Loan-to-value) guidelines for secured lending. With commercial real estate, a typical bank L-T-V might be 80%, i.e. the loan amount would not exceed 80% of the appraised value of the collateral property.
In addition to the internal L-T-V guidelines each bank establishes, there is a regulatory or supervisory L-T-V limit established by the regulatory agency responsible for examining each particular institution (in the case of a national bank like BOk, that would be the Office of the Comptroller of the Currency, or O.C.C.). The supervisory L-T-V limit for owner-occupied real estate would be 85%, typically slightly higher than a bank's internal limit. However, prudent banks usually stick to their internal limits, and almost never exceed the supervisory L-T-V limit.
I have no idea what was the appraised value of the collateral on the Great Plains loan at BOk. I would surmise that the special-use nature of this particular collateral would be detrimental to its appraised value, whatever that turned out to be. If, however, the bank never perfected a valid security interest in the property, they would in effect have a $9 Million unsecured loan, and that would be a very bad thing for the loan officer on the deal, as well as the bank.