I know that with the world falling 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 Lincol and Litigation to which neither I nor anyone on my staff have been invited 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 image of irresponsibility being portrayed by Lincoln. I understand, on the basis of Al's call to Richard Sanchez, that you have informed the Chm. of findings and that he is supportive of corrective supervisory action.

It seems to me that, having put to rest Lincoln's unfounded claims of bià: 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 ar for execution of that decision. In fact, you previously informed me that case would be turned back over to us at the conclusion of your review. I understand that you intend not only to tell Lincoln of the conclusions of review, but to proceed to decide and negotiate the corrective action you t appropriate. If 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 supervisor 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 inform Lincoln of the results of your independent review and get out of tr case. We will not lose sight of the sensitivity of the case, nor will we + to keep you informed every step of the way. In fact, 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.

Lincoln. but we,

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

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 insured 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 Insurance Fund to an unacceptable level of risk.

DATE: Comments must be received by (the 60th day following publication of this notice in the Federal Register).

ADDRESS: Send comments to Director, Information Services Section,
Office of the Secretariat, Federal Home Loan Bank Board, 1700 G
Street, N.W., Washington, D.C. 20552. Comments will be available for
inspection at this address.

FOR FURTHER 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.g., 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/lia-
bility maturity mismatch, Nonetheless, as discussed below, the Board
is concerned that unfettered 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

XB-141

#34

2.

Of 29 lawsuits involving Lincoln Savings and Loan Association, 16
have settled and 13 are still pending. See attached Exhibit "A"
of pending litigation and Exhibit "B" of cases settled in 1985.

ACC/Phoenix

Of the two complaints involving American Continental Corporation,
one was settled on October 30, 1985 (Continental Ranch - Cardi
Construction). The other, a personal injury claim involving
injuries sustained by a cable television installer, is set for
trial March 24, 1986. Plaintiff's counsel has agreed in writing
to dismiss ACC.

There were 22 non-soils litigation cases in 1985, of which 10 have
been settled. See attached Exhibit "C."

Expansive Soils Problems:

There are 22 soils litigation cases currently pending and 4
threatened soils litigation cases. 18 cases have been settled
in 1985. See attached Exhibit "D" prepared by Jeff Cooper.

1. To remain current on legislative and regulatory developments and to assure protection of our specific interests in these areas, significant contacts have been continued within the following:

House Banking Committee
Senate Banking Committee

4

2.

3.

National Association of State Savings & Loan Supervisors
National Council of Savings Institutions

1. Committee on Government Relations

2. Committee on Legislative and Regulatory Affairs U.S. League of Savings Institutions

a.

b.

c.

d.

Elected to the Board of Directors of the National Council of
Savings Institutions

Elected to the Board of Directors of the National Association
of State Savings and Loan Supervisors

Became active in (1) American Bankers Association; (2) the National Association of Thrift Holding Companies; (3) the Arizona League of Savings Institutions; and (4) The American Bar Association's Committee on Financial Institutions Lobbying efforts have created relationships with, and endorsements by, the National Council of State Legislators and the National Conference of Governors.

Activity Relating. Specifically to the Federal Home Loan Bank Board's Direct Investment Regulation includes:

8.

b.

c.

d.

Working with Congressman Annunzio's staff resulting in the introduction by Congressman Annunzio of H. Con. Res. 34 January 21, 1985 (the anti-direct investment regulation resolution)

Active lobbying of state savings and loan leagues and
commissioners opposed to the direct investment regulation.
(See Exhibit "E")

Working with Congressman Pashayan in soliciting co-sponsors
for H. Con. Res. 34 resulting in obtaining a majority of
Congress and a majority of the House Banking Committee as
co-sponsors (See Exhibit "F")

Coordination of lobbying efforts with the National
Association of State Savings and Loan Supervisors, National
Council of Savings Institutions, National Counsel of State
Legislators, National Conference of Governors, Ray Gustini,
Esq., William R. White, Esq., Jay Smith, and former
Congressmen Jerry Patterson, Ludd Ashley, Dave Evans, and
Kent Hance.

Coordination with Paul, Weiss and Congressman Pashayan of
Congressional letter to the Federal Home Loan Bank Board
contesting the legality of the direct investment regulation.
Letter cosigned by Ben Erdreich (D-Ala.), Charles Pashayan,
Jr. (R-Calif.), Thomas Kindness (R-Ohio), Rod Chandler
(R-Wash.), Eldon Rudd (R-Ariz.), Charles Stenholm (D-Tex.),
Tom Luken (D-Ohio), Parren Mitchell (D-Md.), Dennis Eckart
(D-Ohio), and John McCain (R-Ariz.) See Exhibit "G".