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talen over. without such a cover letter, the association will likely consider an MLS avctory, and continue their murry na. Et a letter signed by the Chairman suggesting a Conservator stiin would be a sobering development that would weigh on their minds. I'm reminded on an old stunt that Leo, OE and I agreed upon for an association that we had recommended a C&D on for violating an Agreement, and the association suggested an amended agreement that gave the SA (me at the time) the right to direct the board of directors to remove the CEO and CFO in the event of a material violation. Obviously, the personalities and histories are different, but I remember Leo's line about the clause. He did not think it was enfor cable, but its presence meant that "every now and then, when the president is thinking about doing something funny, he will likely go into his desk, reread the passage in the agreement, and have lots of second thoughts." In effect, that is the effect that I believe a bluntly worded letter from the Chairman would have on the association, Whenever they were thinking of pulling something over on us, engage in something funny, the presence of that letter would likely force them to have rather sobering second thoughts. For the sake of discussion, I'll draft up something appropriately blunt over the next few days and send it to you for comment.

or

:

MSG FROM: CMSSUMJG--HBSF To: CMSSURAS --HBSF

TO: CMSSUSLR--HBSF

05/04/88 13:38:22

FROM: Monica J. Gawot

Agency Functions.-San Francisco-Ext: 5809 Subject: Lincoln I spoke with Bruc. Ericson sarllor today. After reviewing Mr. Luke's reconnondation to the Bank Board he was quite discourage both by the tone of the document (roforring to the negative comments made against this office) and the ovorall lack of good options. Because of the negativo perceptions about this office, we would have to be extremely careful about any response, lost we look even more confrontational. He ballovos that MP has to make a decision as to whothor ve make our proforence to the Bank Board for the record, which

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ci F.H.L.B. OF S.F VM/SP4 CMS

I'm sure we all would agro.. I pontioned that there is ono dangor
of NOT rosponding: IF supervisory and examination functions are
returned to us, we would want total authority to do what is
necessaryo-without rostrictions frou ORPOS ilke ve currently
havo. If the Bank Board makes this decision to return those
functions we cortainly would aot want it restricted in any way.
Bruce agreed that if we fool that Lincoln is golag to go dowa the
tubos in the near futuro, we would aot want the blan put on
us 1f the Bank Board aevor gave us the appropriato authority.
Cona issioner Crawford also called. Ho was told by T. Mar that
Janou Grogaa went to Washington last veok. Grogan told Toney.
that Lincola "got everything they wanted from the Bank Board."
Tonny is trying to reach Grogan to verify this. I told tho
Commissioner that we do not have any knowledge that this is
truo. 1 outllaod J. Luke's proposal for the Commissioner and
told him that it was our understanding that Lincola's MOU would
not be us od us a sottlonant.
cc. casagjia

cc: CMS SUSLR--HBSF

Llacola

OTS-D11-0553847

SPECIAL

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FROM: MICHAEL PATRIARCA, DIRECTOR

AGENCY GROUP--SAN FRANCISCO-EXT: 1801 I know that with the world talling apart and with the FCA activities you. been dealing with, you haven't had a chance to give me a call on Lincoln following your discussion with the Chm. as we had previously agreed. I was disturbed, however, to hear that you have scheduled a meeting with Lincoli and Litigation to which neither i nor anyone on my statt have been invitei My understanding of this whole exercise was that ORPOS was undertaking an independent review of our findings on Lincoln in response to Lincoln's apparent assertion that they were being harrassed by us. You reported to : that you were satisified that we were correct in our assessment of the ri posed by Lincoln and that you were pleased that our people didn't fit the i mage of irresponsibility being portrayed by Lincoln. I understand, on basis of Al's call to Richard Sanchez, that you have informed the Chm, oi findings and that he is supportive of corrective supervisory action. It seems to me that, having put to rest Lincoln's unfounded claims of bids our part, you would inform them of your findings and the case would be returned

to us for decisions on what kind of supervisory action was appropriate as for execution of that decision. In fact, you previously intor med me that . case would be turned back over to us at the conclusion of your review. I. under stand that you intend not only to tell Lincoln of the conclusions or review, but to proceed to decide and negotiate the corrective action you ! appropriate. It my understanding is correct, I object to this approach in strongest possible terms. Neither you nor OE knows this case nearly as we. as we. Neither you nor OE is a better supervi sor than we. Neither you nor (to the best of my knowledge today, will have ongoing responsibility for Lincoln after the present storm has blown over. Plain and simply, you shou intora Lincoln of the results of your independent review and get out of tri case. We will not lose sight of the sensitivity of the case, nor will we to keep you intor med every step of the way. In tact, I will invite you to one of your staff join our team and participate in all discussions with Lincoln. But we, not you, should be running this case. This matter is important as a matter of principle. It is important for our credibility as supervisors of institutions in this district.

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This matter is important as a matter of principle. It is important to credibility as supervisors of institutions in this district.

MICHAEL PATRIARCA
AGENCY GROUP SAN FRANCISCO

Distribution i

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DOCHOWD AT @WASHDC

CC.
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SMUZYNSKIA GAI @WASHDC
CMSL GGSR FHLBSF @SSW
CMSSUMJG @FHLBSF GSSW
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PAN BANK BOARD

CER' PART 563
Limitations on direct Investment by Insured Institutions
AGENCY: Federal Home Loan Bank Board

This absolusate must be stopped By

e most negative

migreactor as we

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SUMMARY: The Federal Home Loan Bank Board ("Board"), as the operat-
ing head of the Federal Savings and Loan Insurance Corporation
(FSLIC' or 'Corporation"), is proposing to amend its regulations
concerning the operations of institutions the accounts of which are
Insured by the FSLIC ( "insured institutions") to limit the aggregate
of insured institution investment in real estate, service corpora-
tions, and equity securities (collectively "direct investments").
The Board also proposes to impose qualitative and quantitative re-
strictions on investment by insuced institutions in most equity secu-
rities. The proposed regulations are intended to allow insured insti-
tutions the flexibility to exercise their investment powers, as
provided by applicable federal or state law, while preventing unsafe
and unsound practices that otherwise would expose the institutions
and the lasurance Fund to an unacceptable level of risk.
DATE: Comments must be received by (the 60th day following publica-
tion of this notice in the Federal Register).
ADDRESS: Send comments to director, Information Services Section,
Office of the Secretariat, Pederal Home Loan Bank Roard, 1700 G
Street, N.W., Washington, D.c. 20552. Comments will be available for
Inspection at this address.
POR “PURTHER INFORMATION, PLEASE CONTACT: Steven A. Rosenberg,
Attorney, office of General Counsel, (202) 377-7054.
SUPPLEMENTARY INFORMATION: During the past few years, changes in
federal and state legislation have provided new investment powers to
thrift Institutions whose accounts are insured by the FSLIC. Included
among these new investment powers is the authority to invest in
equity securities, e... corporate stock, and in real estate for the
purpose of development and other purposes. See e.g., the savings and
loan laws of Texas, California, and Florida. The Board believes that
prudent exercise of these new direct investment powers may allow
thrift institutions to reduce their exposure to certain forms of fi-
nancial risk, e.g., the interest-rate risk associated with asset/11a--
bility maturity mismatch, Nonetheless, as discussed below, the Board
is concerned that unfettéred exercise of these non-traditional
Investment powers is likely to expose insured institutions and the
Corporation to a degree of risk inconsistent with the federal,

program

y8-141 #34

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