21 G. Barclay admitted that he was swayed by the discussion and agreed to give Lincoln a guarantee of transfer if Lincoln agreed to and abided by the supervisory directives or actions dictated by the examination findings. J. Luke outlined the pros and cons of the two proposals. Pro: the Cease and Desist Order would be perceived as a strong remedy. Con: it would not satisfy the FHLBank of San Francisco. Pro: the Memorandum of Understanding would allow the Bank Board to take action based on more recent examination information. Con: it would not address the issues completely; it could be characterized as dodging them. D. Dochow suggested that the ERC leave the choice up to the Bank Board whether to propose the Agreement/MOU-or the Cease and Desist Order or to give Lincoln the right to choose between them. G. Barclay supported the suggestion. R. Stewart stated that she favored giving Lincoln a choice if the two proposals were acceptable to the ERC and the Bank Board because it will make Lincoln's acceptance of a resolution more likely. K. Hoyle agreed. J. Luke opposed giving Lincoln the opportunity to choose between the two options. He argued that giving Lincoln a choice would simply fuel criticism that the Bank Board was incapable of making decisions and was the wrong way to supervise in any event. J. Luke suggested not providing a recommendation to the Bank Board at all, but only setting forth the options. The other members disagreed. The ERC decided to forward all four courses of action to the 22 1) The informal agreement - Lincoln agrees not to sue on the leaks, no promise of a transfer but an assurance that it will occur if the exam findings are 2) The Cease and Desist Order Lincoln agrees not to sue on the leaks, the terms of the Order are 3) Lincoln is allowed to choose between Options #1 and #2; and 4) No transfer, supervision by FHLBank of San D. Dochow recommended #3, #2 and #1, in that order of preference. person's vote. Не D. Dochow proposed that J. Luke and R. Stewart handle communications with the FHLBank of San Francisco regarding the ERC's recommendation and the distribution of the documents. proposed that the ERC recommend that the Bank Board act on this matter by notational voting or, if the Bank Board deemed it necessary, after briefing by the ERC. He opposed the notion of the FHLBank of San Francisco, the State of California or Lincoln making de novo presentations to the Bank Board. The other four 23 R. Stewart offered to redraft the recommendation with the changes agreed upon. The members scheduled the next ERC meeting to start at 2:00 p.m. on April 25, 1988. The meeting adjourned at noon. April 25, 1988 ERC Meeting ERC Members Present: Staff Members Present: George Barclay, Darrel Dochow, Karl Beth Mizuno (OE), and William The ERC reconvened at 2:00 p.m. April 25, 1988 to discuss its Recommendation to the Bank Board regarding Lincoln. D. Dochow opened the meeting with a report on recent comments by J. Cirona. At a dinner recently attended by ORPOS, senior supervisory personnel in the 11th District, and the State of California S&L Commissioner and later that night with only Cirona & Dochow, J. Cirona again stated that he believed that it would be inappropriate to transfer Lincoln. He stressed that whether or not Lincoln remained with the 11th District, Washington must refrain from interfering in the district banks' supervision of their member institutions or Washington (ORPOS) should take the whole responsibility for the supervision. He stated 24 properly. G. Barclay noted that the ERC has not accused the 11th District of wrong-doing; it simply took note of the poisoned relationship between Lincoln and its supervisors. J. Luke stated that he was troubled by Option #1 because it defers resolution of the transfer issue and in essense, the case, until after the examination and during the interim period the risk to the insurance fund will be high. He also said that he was uncomfortable with the lack of current information regarding the institution's activities and condition, and questions whether the new exam will provide enough information to help. R. Stewart responded that the first option directed an immediate exam that should be as thorough as the last exam conducted by San Francisco. Moreover, she noted, Option #1 incorporates increased capital requirements and other positive requirements from the draft Memorandum of Understanding. K. Hoyle added that under Option #1 the Bank Board appears to be acting in a flexible and reasonable fashion. G. Barclay proposed, and the ERC agreed, to modify Option #1 to provide for an on-site examiner to monitor all transactions during the examination to ensure the option's "freeze" on Lincoln's operations. In response to D. Dochow's question, R. Stewart stated that violation of the agreement in Option #1 or failure to cooperate with the examination would not, in themselves, constitute grounds for the appointment of a conservator or a receiver. She added that, by that time, the examiners may well have discovered sufficient and independent grounds for such a remedy and, as in any other case, OE could bring an action to enforce the Bank Board's examination author 25 ity. After some discussion, the committee members agreed to present Option #1 in the form of a Supervisory Agreement, with the new element added to require an examiner, on-site, to monitor Lincoln's activities during the exam. At J. Luke's request, the committee turned to Option #3 and discussed the pros and cons of allowing Lincoln the opportunity to choose between Options #1 and #2. J. Luke stated that he was uncomfortable with the idea of giving Lincoln a choice of options. R. Stewart stated that supervisory agents often give their institutions and management officials a choice of remedies. D. Dochow reminded the committee that Option #3 enhanced the probability that Lincoln would accept a negotiated settlement. R. Stewart agreed and stated that Option #3 was the option most likely to result in a negotiated resolution of this matter. G. Barclay suggested that the ERC eliminate Option #3 out of concern over the adverse publicity it could generate if the recommendation were leaked. J. Luke agreed. G. Barclay suggested that the recommendation be revised so that it presents Options #1 and #2 and concludes with a note advising the the Bank Board that they can offer Lincoln the choice of either option. D. Dochow noted that the Committee members can present their views about former Option 3 at the Bank Board briefing(s). R. Stewart agreed to revise the recommendation in this fashion. As revised, G. Barclay voted in favor of Options #1, with a second choice for $2. D. Dochow voted in favor of option #1. J. Luke voted in favor of Option #2. R. Stewart and K. Hoyle voted in favor of |