The state’s chief regulators sought to defend their oversight of New Frontier Bank during a legislative hearing Wednesday, saying its $1 billion failure last year had nothing to do with poor regulation.
But, the officials said, they would be open to implementing reforms after federal and state inquiries into the bank and its oversight are complete.
“There may be lessons to be learned from continuing investigations of New Frontier Bank,” said Barbara Kelley, executive director of the Department of Regulatory Affairs. “But the failure had nothing to do with the adequacy of (regulation).”
Kelley and acting banking Commissioner Fred Joseph testified before a joint House-Senate business committee, assuring lawmakers that the banking division was working to alleviate its shortage of bank inspectors, filling three of six vacant positions in recent weeks. During the last decade, the growth in bank assets far outpaced the growth of the division’s examination staff.
Remaining jobs are difficult to fill with qualified people, Joseph said, because of the pressurized environment surrounding banking and cash-strapped state-government jobs that don’t pay as well as other regulatory agencies.
Asked by state Rep. Joe Rice, chairman of the House Business Affairs and Labor Committee, what lessons are evident from New Frontier’s failure, Joseph suggested that the state could improve its monitoring of rapid growth.
The bank quadrupled its assets in less than three years, surging from $500 million in 2005 to $2 billion in 2007.
“If that happens, we should require them to put more capital in the bank,” Joseph said.
Rice questioned why the state’s examiners did not pick up on potentially criminal acts by the bank’s executives, such as hiding bad loans. In December, a Denver Post investigation reported that insider trading, the masking of loan losses and other possibly illegal transactions were missed or went unpunished.
But Joseph and Kelley said state regulators should not be held responsible for failing to detect fraud at the bank.
Miles Moffeit: 303-954-1415 or mmoffeit@denverpost.com
