Ed Gray

Bank Board Chairman (1984-1987)

In 1984, Ed Gray was appointed chairman of the three-member Federal Home Loan Bank Board. The Washington Post described Gray:

"Gray was neither an economist nor a businessman by profession, but rather a born pitchman and cheerleader. After a brief episode as a reporter, working in the Madrid bureau of United Press International during the early 1960s, he went into public relations and made a career of saying positive things about his employees. This decidedly average man--brown hair, square face, medium height and build--instinctively shunned controversy and conflict." (The Washington Post, June 11th, 1990).

During his time on the Bank Board, Gray took a different stance than the rest of the industry regarding brokered accounts, cash reserves, and direct investment regulations. As early as December 1985, Charles Keating, owner of American Continental Corporation and Lincoln Savings and Loan, attempted to hire Gray out of his Bank Board position. Gray, however, refused the offer and reported Keating to the Justice Department.

On March 12th, 1986, the FHLBB began its first major examination of Lincoln in two years. The last examination, conducted six months after Keating acquired Lincoln, revealed "appraisal difficulties," "an overvaluation of capital," and "lack of an internal audit committee." Despite the fact that he had never spoken to or met Keating, and had no personal involvement in Lincoln's exam, The Washington Post ran a full-page story about a so-called "feud" between Keating and Gray. The September 1986 story claimed that Gray was prolonging regulations and abusing Lincoln because of a personal vendetta against Keating. Not knowing the origin of these claims, Gray requested an update from the San Francisco regulators conducting Lincoln's audit. Three days later he received the "Cirona Report" — a lengthy explanation of concerns (as outlined in the draft statement of Supervisory Concerns), along with details about how Keating impeded the examination. The FHLBB ended its fieldwork a few weeks later.

Not long after, the recapitalization bill that Gray was pushing through Congress was unexpectedly blocked by Speaker Jim Wright (Wright claimed that Gray's regulators were being too tough on Texas constituents of his - Empire Savings & Loans - and that he would not remove his legislative block unless Gray “called his dogs off”). Gray later said that this incident taught him that Congressional support was essential for advancing any of his reforms.

On March 6th, 1987, Gray met with Senator Riegle to drum up support for new direct investment regulations. Riegle and Gray had a very close professional relationship; early on, Riegle voiced his support for Gray as chairman and offered Gray “a shoulder to cry on.” Gray says that, at the end of the meeting, and when his aide left the room, Riegle pulled him aside and told him that there were senators out West who were very unhappy about the Bank Board's exam of Lincoln. He suggested that Gray schedule a meeting with the senators. Gray protested, saying it was the “same thing all over again; the Charlie Keating vendetta argument” and that he did not want to get involved. Despite his aversion to the idea, Riegle closed the meeting by saying, “You'll be getting a call.”

Lincoln filed a lawsuit against the direct investment law. Shortly after, a petition was filed for Gray's recusal. Then Gray's office received a call. According to Gray, on the morning of April 2nd, his scheduler told him that he had a meeting in Senator DeConcini's office with a group of senators; he was not to bring any aides. Gray claims that he was very troubled by the instruction; however, because he needed Congressional support and because he was a “big boy,” he attended the meeting alone.

In his meeting with Senators Cranston, DeConcini, Glenn, and McCain, the senators raised their concerns about the length of Lincoln's examination. Gray claims that DeConcini pursued "a deal" – Keating would move Lincoln into more traditional home mortgages if Gray would rescind the direct investment rule. All four senators adamantly deny Gray's allegation. Gray also testified that he was intimidated by this “show of force.” Gray was desperately seeking Congressional approval for a recapitalization bill; without additional funds, the Bank Board was inhibited from initiating government takeovers of troubled thrifts. He needed the support of leading senators, like Riegle and Cranston, on the Banking Committee.

Gray claimed that he did not possess any specific knowledge about the examination of Lincoln. He said that he had purposefully avoided unnecessary contact with Keating's exam in an effort to distance himself from bad appearances. Gray did not consult his files on Lincoln before attending the meeting. His defense is that Lincoln was not specifically mentioned when the meeting was arranged. He later admitted that he knew that Lincoln was the senators' concern. He told them that, if they wanted answers, they should meet with the San Francisco regulators.

Gray called his office immediately after the meeting and told his staff to wait in his office so he could debrief them on the meeting. Two affidavits (Exhibit 6, 7) from Gray's staff members support Gray's account of that evening's meetings: “That the meeting was not arranged to hear his views but, instead, was an attempt at intimidation,” which was characterized as “inappropriate.” Gray stated that DeConcini took the lead in attempting to have the Bank Board modify or withdraw the rule about Lincoln and he expressed his outrage at the senator’s proposal. Despite these frustrations and allegations, Gray took no official action to address the DeConcini’s alleged conduct. Instead, when DeConcini called him a few days later to tell him that the senators would like to meet with the regulators, Gray put the two parties in touch.

After coordinating the meeting between the regulators and the senators, Gray gave William Black, one of the three regulators who attended the meeting, instructions to take notes (these were later known as the "Black Transcript"). Gray sent Riegle a copy of Black's transcript shortly after he received it. Gray says he did this “in fairness” to Riegle.

Gray had no further contact with the senators regarding the regulation of Lincoln. Gray says that none of his or the Bank Board's actions were affected or altered by the April meetings.

After the scandal broke, divergent opinions emerged on Gray, who was active in the media and traded sharp letters back-and-forth with some of the senators. For Cranston, Gray was simply trying “to divert attention away from his own role in the savings and loan scandal. ‘Gray, with his lavish, industry-paid expense account and Hawaiian junkets, thought of the Federal Home Loan Bank Board as his Good Ship Lollipop,’ Cranston said… ‘When it turned into the Titanic, he began looking for scapegoats.’”

However, Bill Seidman and William Proxmire took to defending Gray. Proxmire told the press that “in hindsight… he was right on almost every count.” Seidman said that Gray “likes being a hero. Here is a guy that was being massacred, and now he relishes being on the offensive. He wants to set the record straight. It's very important to him.”¹

¹Cranston, Seidman, and Proxmire quotes are from this article.