February 7, 2010 in Business

State backs bills to keep troubled banks’ information secret

Libby Tucker The Columbian (Vancouver, Wash.)
 

Washington bank regulators are backing revisions to state law that would block the public’s access to state information on troubled banks.

Four proposed bills have been drafted by the Washington Department of Financial Institutions in response to a rash of bank closures last year. The bills mostly aim to clarify to bank managers the actions DFI will take when it steps in to help fix or close state-chartered banks and credit unions, said DFI Director Scott Jarvis.

But House Bills 2830 and 2831 and Senate Bills 6369 and 6370 also contain a few lines revising public disclosure laws. The rule changes, submitted to the Legislature in January after clearing Gov. Chris Gregoire’s office, ensure those regulatory actions and related information are never made public, unless DFI’s director decides otherwise.

“I’m disturbed that these bills give DFI a lot more power … to seize banks and displace their officials and at the same time, greater authority to keep this from the public,” said Toby Nixon, president of the Washington Coalition for Open Government in Seattle. “It should be the opposite. There needs to be more transparency.”

The bills were drafted, in part, due to lessons from DFI’s closure of the Bank of Clark County in Vancouver in January 2009, Jarvis said. Information about the bank’s possible closure circulated for weeks beforehand, he said, triggering a run on the bank’s funds and nearly causing it to fail midweek, instead of on the prescribed Friday.

DFI says restricting public information about its regulatory actions will prevent misunderstandings that cause depositors to withdraw their money and further jeopardize the bank, causing it to fail.

“Releasing certain information would be damaging to the taxpayers ultimately if it harms the bank,” said Jarvis, “and it wouldn’t allow us to counsel the bank through difficult times.”

The bills also aim to stem leaks from inside bank management by imposing new, $10,000 fines to bank and credit union employees for unlawful disclosure.

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