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Scott Jarvis recalls Great Recession ups, downs

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 Few people had a more important role than Scott Jarvis in overseeing how Washington’s financial institutions weathered the twists and turns of the disruptions the Great Recession brought to the economy and the financial industry.

As director of the state Department of Financial Institutions (DFI) from 2005 until his retirement this week, it was the role of Jarvis and his team to closely monitor the financial health of the state’s banks and thrifts during that economic crisis. And on 20 or more occasions, they had to pull the plug when critically inadequate capital or severe loan losses threatened continued solvency.

Jarvis, appointed by Gov. Christine Gregoire to the DFI director role in 2005 and reappointed in 2013 by Gov. Jay Inslee, reflected on that crisis during an interview that amounted to a revisiting of the bumpy ride on which the financial downturn took financial institutions in this state, and the role his agency had in each of the “bumps.”

But the most high-visibility failure, the seizure of Washington Mutual in September of 2008 by the Federal Deposit Insurance Corp. and the sale of the assets of what was by then one of the nation’s largest banks to J.P. Morgan Chase, was without consultation with the state regulators.

And the closure that was perhaps the most painful for Jarvis and his staff, that of Frontier Financial Corp. in April of 2010, was unavoidable after the feds turned down what both the bank board and state regulators viewed as a satisfactory buyout plan.

“If I had to name a ‘down’ moment, it was the circumstances associated with the closing of Frontier Bank,” Jarvis said. “Willing and adequate capital was available for infusion but the Fed was unwilling to sanction the transaction.”

A key bright spot for the regulators was the successful emergence of Sterling Savings Bank from under threat of closure. The once high-flying Spokane-based institution had been placed under a cease and desist order in early October of 2009 and its chairman-founder and the CEO ousted.

Agreements Sterling secured to raise $730 million in new capital under new CEO Greg Seibly and a reconstituted board allowed both DFI and the FDIC to terminate the order and allow Sterling to proceed back on the road to healthy operation and growth, and eventual acquisition by Umpqua Bank.

In fact, Jarvis said of Sterling’s re-emergence: “Sterling’s success is proof that a cease and desist order is not a death-knell for Washington’s banks, but rather a call to action. When a financial institution’s leaders take aggressive, well-planned, corrective action, success can be found at the end in safe and sound business practices – and in strong community and employee support.”

The financial crisis had actually paved the way for Oregon-based Umpqua to move into Washington since the Bank of Clark County, closed by DFI in January of 2009 as the first closure in this state, reopened under Umpqua ownership. And a year later, when DFI took action against Seattle-based Evergreen Bank and Rainier Pacific Savings Bank, they wound under the Umpqua banner.

And Jarvis may well have had Umpqua, among others, in mind when he said: No matter how dark the financial or investment environment might seem at any given moment, there are always individuals and organizations who see opportunities for success that benefit our economy and move us forward.”  

Of the circumstances that forced DFI to close the 18 banks and at least two thrifts that the department had to act on, Jarvis observed: “as a pituitary giant will tell you, sometimes there is a problem with too much growth.”

Jarvis, a New York native who graduated from Allegheny College and got his law degree from University of Puget Sound (now Seattle University), first joined DFI in 1997 after serving as an insurance regulator for the state Insurance Commissioner and General Counsel to the State Treasurer.  

In discussing the relations between state financial regulators and their big-brother counterparts at the federal level, Jarvis admitted that “overall, state regulators are concerned with the feds pre-empting powers of state regulators,” evidencing an unsaid sense that in some areas, the local regulators have a better sense of market needs.

A key area where that is important, he feels, is in failure of the feds to understand the need to right-size regulations for small institutions, where “the risk and exposure are dramatically different for small banks.”

“I think the number of small commercial banks will shrink further and small towns need these kinds of institutions,” Jarvis said.

Of the WAMU takeover by the Fed, Jarvis’ banking chief, Rick Riccobono, has been outspoken in his view that the Fed’s action and its sale of assets to J.P. Morgan Chase for what many viewed as a bargain-basement price didn’t need to have happened. Jarvis has routinely scolded Riccobono for making those statements to various groups, but intriguingly, hasn’t said he disagreed with the comments.

Under his leadership, DFI became a nationally-recognized leader in state financial regulation, which helped move the state from 17th in the nation to 10th on Washington's Corporation for Enterprise Development Scorecard Ranking in "Financial Assets & Income.” In 2012-13 he chaired the legislative committee for the Conference of State Bank Supervisors.

An area where Jarvis was obviously pleased to see the states step in when a void was being left at the federal level was in creation of local legislation to make it easier for start-up entrepreneurs to raise capital from local investors, basically a state version of the JOBS Act passed by Congress in April of 2012.

It was clear after Congress passed the legislation and told the Securities & Exchange Commission to enact rules to put the law into effect, that the SEC’s then chair, Mary Shapiro, didn’t think easing investor protections to enhance entrepreneurial opportunities was a good idea, so she foot dragged for several years.

Eventually a number of states, including Washington, decided they could do it better locally anyway, so they enacted JOBS Act-like crowd-funding legislation, strongly supported by Jarvis and his agency. He told me once that his role was to balance protection for investors with opportunity for entrepreneurial startups and that the balance wasn’t that difficult a challenge.

He was careful how the process of putting the crowd-funding into effect was carried out, with hearings, testimony and staff evalutions, though there have only been four companies that have filed to raise money under the state legislation.

In thanking Jarvis for his years of contribution, the governor named Gloria Papiez, who had served as Jarvis’ deputy for more than a decade, to replace him.

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Patrick Patrick completes latest turnaround of a troubled bank, awaits next call for help

Patrick Patrick's retirement as president and CEO of Seattle Bank, which was on the financial precipice when he arrived on the scene in September of 2010, has now completed the latest chapter in a career of turning around troubled banks.

  

Patrick, now 72, figures he'd be interested in another turnaround opportunity and is quite certain there will always be banks in need of turnaround. And he thinks that perhaps what he sees emerging in the industry may continue to produce more of them.

pat patrick
Patrick Patrick 

"There will always be troubled banks," said Patrick in an interview following his retirement. "The question is the degree of trouble in determining if they need to bring an outsider in."

 

It took Patrick less than a year at the helm of Seattle Bank before he put together an unusual team of non-bank people, prominent local business executives who put up $50 million to recapitalize the bank. That provided the capital for Patrick to start bringing the bank back out from under the weight of soured real estate loans that had brought the bank under the thumb by regulators since July of 2009.

 

Since its establishment as Seattle Mortgage Company in 1944 by Ben Smith Sr. to help veterans returning from World War II to buy homes, the bank had been a highly regarded, family owned financial firm.

 

It became Seattle Savings Bank in 1999 but changed its name to Seattle Bank in 2009, shortly before the bank and its Seattle Financial Group holding company were placed under a cease-and-desist order and told to create a capital-infusion turnaround plan.

Now that he has turned the bank around and stepped, perhaps briefly, into retirement again, Patrick sees a familiar, troubling pattern re-emerging.

 

"We're going back to doing the same things we did when the financial industry got into trouble. Because competition is fierce and interest rates are extremely low, some banks are making loans on terms we shouldn't be considering," Patrick added.

 

Patrick's perspective extends back over four financial crises, with his first opportunity to assume the role of turnaround CEO coming after the savings and loan crisis of the early '80s when, in 1983, he was asked to take the helm at Seattle-based Prudential Savings, which was in danger of being closed.

 

Two years later, he found himself also overseeing Westside Federal as well, running both thrifts simultaneously for a year before melding Westside into Prudential and, on "Black Monday" in 1988, selling Prudential to Tacoma-based Pacific First Federal.

 

Thus the role Patrick played at Seattle Bank is one he's been playing over the 30 years, a role that could be characterized as the financial version of an old television western series called "Have Gun, Will Travel" in which the hero went from town to town to resolve problems created by the bad guys.

 

As I pointed out in a column on Patrick soon after he stepped in at Seattle Bank, in his case the "bad guys" have been those who've taken actions that jeopardized community banks thus putting at risk the important role such institutions have traditionally played in the economic health of their communities.

 

Not all his assignments have been successful, as his role immediately preceding Seattle Bank, guiding the hoped-for turnaround of Towne Bank of Phoenix, failed as the bank went down four years ago next month, two years after Patrick came in with the bank under the cloud of federal oversight.

 

"It was the target of one of the first cease-and-desist orders in the country and had one of the highest amounts of non-performing assets I'd ever seen," Patrick said. "In the end it wasn't possible for the turnaround effort to succeed."

 

As a career-long believer in community banks, Patrick expressed concern about their future in the 2010 interview, and retained that concern in the interview following his Seattle Bank retirement.

 

"Community banks are the framework of any town or city and the framework is in great jeopardy," he said in the 2010 interview, "even though not one dollar of taxpayer money has been spent on any problems that individual community banks have encountered. Any money that's gone to community banks has come from assessments and insurance premiums."

 

He has similar concerns still, noting that "many of the new regulations put forth in the past couple years have made community banking much more difficult."

 

"Sometimes the law of unintended consequences makes the cure worse than the issue," he said. "Without community banks, who is going to help the small businesses that drive our neighborhoods?  We can't doubt the sincerity of those who want to provide protection for everything, but there is a point where we create even bigger concerns."

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