SILVERADO BANKING, SAVINGS AND LOAN HEARINGS BEFORE THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS HOUSE OF REPRESENTATIVES SECOND SESSION PART 1 MAY 22 and 23, 1990 Printed for the use of the Committee on Banking, Finance and Urban Affairs Serial No. 101-124 US GOVERNMENT PRINTING OFFICE WASHINGTON: 1990 For sale by the Superintendent of Documents. Congressmenal Sales Office Creager, Robert E., partner, Coopers & Lybrand Hershkowitz, Stephen P., deputy director of Enforcement, Office of Thrift McCormally, Brian C., district counsel, Office of Thrift Supervision, Topeka...... Sandefur, Terry, assistant deputy district director, Supervision, Office of Van Cleave, Dorothy, assistant deputy district director, Examinations, Office Weinstein, Harris, chief counsel, Office of Thrift Supervision Wullschleger, Herb, partner, Ernst & Young. ADDITIONAL Material SUBMITTED FOR THE RECORD Anonymous letter dated October 25, 1988, to M. Danny Wall and Kermit Background information for Silverado hearings provided by minority staff ........ 531 187 202 Office of Thrift Supervision: Joint statement of Stephen P. Hershkowitz, Brian C. McCormally, Terry 274 News Releases dated January 10, 11, 19, 23 and 26, 1990. 192 Index of Key Supervisory Actions. Silverado Banking, Savings and Loan Association: Holding Company Loan charts.. Loan Pool chart Overview.. Quid Pro Quo Program charts. Supervisory Chronology.... Silverado Hypergrowth chart Examination History from January 1980 to December 1988.. 172 164 173 168 155 166 175 162 (三) Silverado Banking. Savings and Loan Association-Continued Sulverado Self-Funding Capital Transactions Information provided by OTS on Silverado's transactions with Bill L. Walters Memorandum dated January 18, 1990, from OTS enforcement and the Topeka District Office to the ERC regarding recommendation for action in respect of New M. Bush...... Memorandum dated February 17, 1988. from Jack Grace and Dennis Lacey, Questions for Mr. Paul submitted by Hon. Bunning Supplemental submission, charts prepared by Office of Thrift Supervision. WITNESSES WEDNESDAY, MAY 23, 1990 Bunchman, Richard J., former director, Silverado Banking Prepared statements Annunno. Hon Frank. APPENDIX Additional MATERIAL SUBMITTED FOR THE RECORD Correspondence with witnesses. Excerpt from GAO Report on Thrift Failures: Officers and Directors Breached Internal memorandum dated February 23, 1987, regarding significant loans Letter dated November 5, 1986, from Neil M. Bush to Michael Wise regarding a $900,000 line of credit for Good International Office of Thrift Supervision Manual Director Information Guidelines. Subpoena resolution. Wise. Michael, memorandum and letter dated July 15, 1965 regarding Neul M. 10 STATEMENT OF BRIAN C. McCORMALLY, DISTRICT COUNSEL Mr. McCORMALLY. Good morning, Mr. Chairman, and Membe of the committee, my name is Brian McCormally. I am discre counsel for the Office of Thrift Supervision's Topeka District The Topeka District is responsible for examining and supervising savings and loans associations in the four-State region of Colorad Kansas, Nebraska and Oklahoma. Perhaps the most dramatic failure of a savings and loan associ tion in the Topeka District involves Silverado Banking, Savings and Loan Association of Denver, CO, now in receivership. I belie Silverado may be used to illustrate many of the causes of the rent thrift crisis. By providing the committee staff access to our supervisory es aminations and enforcement files, the Topeka District has attempt ed to cooperate in every way with the committee. While your has had an opportunity to review the Silverado documents, we w come the opportunity publicly to detail what factors led to the fail ure of Silverado. You should be aware that OTS is currently in negotiations and administrative litigation with various individuals and entities for merly associated with Silverado to formalize formal enforcement actions against them. Because these actions are in litigation have not been finalized, our ability to discuss them, I trust, is us derstandably restricted. By way of background, my job is to supervise the District's legal staff and to provide legal support to the examination and supervi sory staffs of the Topeka District. As the senior attorney in the Dis trict, I am also responsible for ensuring the timely and effective implementation of formal and informal enforcement action against institutions located within the District and individuals a sociated with these institutions. Prior to becoming employed by the Federal Home Loan Bank of Topeka, I was in the private practice of law in the Kansas City metropolitan area. My law practice primarily involved litigation and the representation of large financial institutions. I became eral counsel of the Federal Home Loan Bank of Topeka in Nove ber of 1985. At that time the job involved providing legal support to the bank in both its regulatory and credit capacity. In early 1987 I limited my responsibilities at the Federal Eme Loan Bank to the regulatory function and have remained an capacity since that time. At the time I was hired there were only three line agents and seven other professional staff assistants zu supervising the District's 185 savings and loans. Becaus of the industry's problems was only then becoming for an expanded regulatory staff was recognland the first people hired in an attempt to abases effort. The legal staff at the bank was not expé until May 1987. Because of this lean staffing and the of impending financial disaster in institutions and elsewhere, my efforts throughout 2652 22 I recommended the transfer of Silverado to the FSLIC in Se ber 1988 for case resolution. The FSLIC accepted the tran October 1988, and the memorandum recommending that Sil be placed into receivership was submitted to the Bank Boe November 9, 1988. Pursuant to that recommendation, the FSLIC was appoint receiver for Silverado on December 9, 1988. Determining the facts in this case and establishing the gro for desired regulatory actions involved sorting through a sop cated maze of convoluted transactions and overcoming the cles put in place by Silverado's management to impede regul action. Ultimately, through the efforts undertaken by the Superv Agent, the examiners, District Counsel, and Enforcement, S ado was brought under control, and its true financial condition determined. Without these efforts, the losses from Silverado's failure have been much larger than the substantial burden already upon the taxpayers from this case. What can be done to prevent another Silverado? The pas FIRREA in August 1989 has implemented structural reforms sary to protect against this type of failure, and the enforce tools provided by this legislation will be of great assistance in venting abusive actions that are detrimental to the safety soundness of financial institutions. Last, it is important that the regulators have sufficie sources, both in terms of quantity and capabilities, to adequ carry out their regulatory responsibilities. Thank you. [The information referred to can be found in the appendix] The CHAIRMAN. Thank you, Mr. Sandefur, and we have b notice here that we have had the second bells; that we have corded vote, and we are going to give enough time for the Me to record their vote. And before we recognize you, Mr. Hershkowitz, we will rece some 10 minutes. [Recess] The CHAIRMAN. The committee will resume. When we rece we were about to recognize Mr. Hershkowitz, so we do so now. STATEMENT OF STEPHEN P. HERSHKOWITZ, DEPUTY DIRECT OF ENFORCEMENT, OFFICE OF THRIFT SUPERVISION Mr. HERSHKOWITZ. Thank you, Mr. Chairman. I am Stephen Hershkowitz, a deputy director of Enforcem have been at the OTS for 6 years, and for the 9 years before was in Enforcement at the Securities and Exchange Commi Enforcement's first role in the Silverado case was to py advice and support to the supervision staff. We accompanied Supervisory Staff to the March 10 meeting that has been des already, and from there then on Silverado operated under the pervisory directives and formal agreements negotiated by the pervisory Staff. M |