Timothy Ryan : Overseeing the S&L; Mess: Life on a Political Hot Seat

As the nation’s chief savings-and-loan regulator, T. Timothy Ryan Jr. has one of the least-wanted jobs in Washington. The growing S&L; debacle can be lethal to political careers. Ryan’s predecessor as director of the Office of Thrift Supervision, M. Danny Wall, resigned in early 1990, under pressure, because of his handling of the Lincoln Savings & Loan scandal.

Ryan, who turned 46 last month, was a novice as a regulator when nominated by President George Bush. The former Labor Department lawyer and pension specialist barely survived his Senate confirmation. He was lambasted publicly for his financial inexperience. In addition, a confidential FBI background report was leaked during the hearings, showing Ryan had admitted to smoking marijuana and trying cocaine as a college student.

But Ryan has earned high marks in the 14 months since he took office. American Banker, the industry’s trade newspaper, described him as having moved “from flyweight to heavyweight.” In press briefings soon after his appointment, Ryan proved testy in exchanges with reporters and often referred questions to aides for answers. Now, in conversation, he appears far more comfortable, answering questions with confidence.

Ryan earns the most praise for aggressively filing civil charges to hold accountable former senior executives and directors of failed thrifts. The list includes former Lincoln owner Charles H. Keating Jr., former Columbia Savings & Loan Chief Executive Thomas Spiegel and President Bush’s son, Neil, a director of the failed Silverado Banking, Savings & Loan in Colorado.

Still, the bailout cost keeps soaring. Ryan sticks by a Treasury Department estimate that the eventual tab will be from $90 billion to $130 billion--although Treasury Secretary Nicholas F. Brady has admitted the amount could reach $160 billion.

That number represents what it would cost if the government could write a check today to clean up the mess. But since it doesn’t have the money, and will have to borrow and pay interest to finance the bailout, the eventual cost, over 30 to 40 years, is expected to reach $600 billion.

Ryan grew up on Long Island. He is married to the former Judith Rush, a former State Department worker, and they have two children. Ryan seems unscathed by the shredding he underwent during his confirmation hearing and the battles he observes daily in the S&L; wars. Appropriately, one of the things he likes to do most when he isn’t working is watch the bruising sport of hockey.

Question: When all is said and done, how deep is the hole going to be for the savings-and-loan mess?

Answer: The estimate today, which is a Treasury Department estimate, is between $90 billion and $130 billion on a present-value basis (the cost if paid off today), and that’s the number we’re working on. The high-end estimate assumes a higher failure rate of our “Group Three” (marginal) institutions. The wild card in all this is there are a number of large institutions in Group Three.

Q: It’s amazing there has not been as much public anger as one would think--given the size of the numbers. Does this surprise you?

A: I’m not sure that I would agree with your statement. As to anger, I think there is a lot of anger. But there is also a feeling among most taxpayers that the deposit insurance system is appropriate and that it is working. They all know that the dollars we’re paying out are dollars that are fulfilling the insurance commitment.

Q: And depositors don’t get emotional?

A: There are no deposit runs. The people who bank at an institution go to the bank on Friday and conduct their business. We close it Friday afternoon, we work all weekend to take over the institution and we reopen it on Monday, with new management and a new name. The same depositor comes back on Monday, and continues to do his or her business. The reason for that is deposit insurance, and deposit insurance has worked.

Q: What are your current estimates of how many S&Ls; are going to fail? And how many are going to survive?

A: We have 2,300 institutions operating in the private sector. Of that number, a little in excess of 100 are what we call “Group Four”--institutions that will require government assistance. That means they’ll go to the Resolution Trust Corp., or they’ll be resolved with some type of government assistance. There’s also a portion of our Group Three institutions that will probably require assistance. What I have said is that the eventual number of survivors we’re probably looking at here is someplace between 1,500 and 2,000.

Q: Some people have suggested that you are presiding over the last days of the thrift industry as we know it.

A: I do not agree with that assessment today. I feel that institutions providing housing-finance services will be with us in the future. Our goal today is to identify institutions that require government assistance and transfer them to the RTC, and provide an operating environment for those institutions that will remain in the private sector so that they can profitably provide a service to their customers.

I don’t care whether you call them a thrift, or you call them a consumer bank, or you call them a commercial bank. I think that economics of the business should dictate the services they provide.

Q: You’ve been critical of the way we regulate our banking system. What’s wrong?

A: For financial institutions, the regulatory structure is just too cumbersome. The services provided are duplicative and require significant restructuring. It just is not a good use of taxpayer funds to have four or five financial institution regulators. If we were creating it today, we would not create what we have.

Q: You’d like to eliminate your own job?

A: Yes.

Q: What are the odds that will happen?

A: It changes each day. The Treasury proposal would set up a new agency to regulate national banks and thrifts, and their holding companies. I hope that passes.

Q: You’re more optimistic than a lot of people about the prospects that major banking reforms will pass. Why?

A: I think the time is right for significant changes if we want to provide financing for the next century and if we want to do it as a world-class power. We have to make changes. I think Congress knows that. Certainly, the Administration knows it.

Q: Do you have different views now on what caused the S&L; debacle than you did before?

A: Clearly, the S&L; industry suffers from the exact same limitations that exist for all financial institutions in the country, and I would describe that simply as overcapacity.

The business has changed radically, with a movement away from fixed rates, to a more competitive marketplace. The industry had to make a radical change in the ‘80s--from one that was a relatively serene environment to one super competitive. They made some bad management decisions in the commercial real-estate area; that is also true of their colleagues in the commercial banking area.

The thrift business also attracted some high fliers who abused the process. So it’s kind of a combination of a new environment, a combination of some extreme gambling and fundamental overcapacity, which has produced the largest financial cleanup that the country has ever seen.

Q: Speaking of the high fliers, how do you rate the success of authorities at getting the S&L; crooks?

A: I think we’ve done a tremendous job.

Q: There have been some setbacks.

A: I wouldn’t agree with that. I think that in the last year and a half we have done a tremendous job at identifying people who abused a public trust. We have, in many, many instances, locked up their assets. We are in the process of moving through the appropriate administrative proceedings to determine whether or not there’s some culpability and whether or not there should be restitution and prohibition.

We gave the Justice Department, about a year ago, our list of 100 top institutions for criminal prosecution. They have worked their way through more than 75% of them. They have ongoing investigations right now for all of them.

Q: Do you feel that your agency had something to prove in going after Neil Bush the way you did?

A: The case was brought against Mr. Bush by my predecessor, so it was in the works. He was just like any other independent director. I don’t really care what his name is. The more important aspect of the Neil Bush case is what we expect of independent directors when they’re faced with a conflict of interest. What we expect them to do is disclose their conflicts and then excuse themselves.

Q: The agency now seems to be focusing on the accountants, investment bankers and lawyers tied into these savings and loans. Why is this a priority?

A: We have determined during the last 15 months of close analysis and review that many inappropriate activities of the 1980s involving savings and loans could not have taken place without the active involvement and, in some instances, complicity, of service providers--lawyers, accountants, investment bankers, appraisers. They were, in many instances, integral parts of the misappropriation.

Q: Some people suggest that it’s their deep pockets.

A: The RTC and the FDIC (Federal Deposit Insurance Corp.) have targeted professional service firms for a lot of different reasons, and one of the reasons may be that there’s insurance. OTS has targeted them more because of their importance to the regulated industry. They’re necessary players in any regulated industry, and we need to make sure that their behavior is appropriate in the future. We’re also doing it because we have a responsibility to identify people who do not deserve to be in the business.

Q: But when you’re telling someone like Neil Bush that you are putting restrictions on him, or telling someone else they can’t be in the business, it’s not much punishment.

A: I don’t want to talk about his case specifically. But, generally, the removal and prohibition actions or cease-and-desist actions are important for a number of reasons. One, you eliminate the person from the marketplace today. But, as important, you identify them or brand them for the future. One of the problems is that many of the people who participated in the ‘80s were there in the ‘70s, when the last scam took place. We want to make sure that those people are not around in the ‘90s for the next whatever.

Q: In light of the ugliness of your confirmation, do you feel that you’ve had to put a lot of effort into earning respect?

A: No. I approach every job the same way.

Q: You must have thought it was unfair.

A: Yeah. It was certainly not what I expected, because, when I was asked to do the job, I knew--and they knew--that I had no background in the area. And principally what they wanted--Treasury and the White House--was someone who could manage the operation and who had some significant enforcement experience. I had both those things. I knew--and they knew--that I didn’t know anything about the S&L; industry. As it turned out, I think the industry is one that’s relatively complex but certainly understandable.

This is an unusual government job in that there’s a goal. It’s clearly defined and it’s achievable. I didn’t know that in the beginning. Within some reasonable time period we can take an industry, consolidate it significantly and then move it kind of back into a regular private-sector environment with rules that are appropriate for its continued growth.