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You’d think I was trying to get the codes for Fort Knox. Information is power, so what does that make obfuscating it?   In this article we are going to taker a deep look into what some seem to believe are unethical activities at Monterey County Bank.

Note from the writer: in this series we look at events and stories with an eye towards problem solving and solutions, not pitch forking and shame. Our society has done that last part for too long with not great results. Let’s try something lighter, shall we...

“The FDIC would have loved trust preferreds to have gone away because then their problem and job would have been easier. They are the ones who encouraged trust preferreds to be issued. They are the ones who wrote papers on what a great thing it is and then … when there was a problem, they said, ‘gee this is a bad thing, I can’t believe this ever happened.’ But you were the one who basically was encouraging people to do it. So they have a very selective memory and they have a very a selective way of asking people when they need help and don’t.” Brett Jefferson, President of Hildene Capital

Last month, we looked at Charles Chrietzberg’s Monterey County Bank, under longtime consent order, as an investor sought assistance from various federal institutions for his concerns about the bank. He has mostly heard crickets, as did I when I asked officials about the situation.  Institutions like The Federal Reserve and the FDIC cite a policy of not discussing currently operating banks. (Am I the only one to hear the voice of SNL’s wise Church Lady observing, “Well, how convenient!”)

As a follow-up to that story, I wanted to look at the basic question of trust preferred securities (TruPS) as Tier 1 capital and how it came to be, within 15 years, a policy that went from promising and widely used to legally phased out.

Seemed pretty basic: who put it forth and how did this even become policy? Again, not to blame and finger-point, but so we can understand and learn from it to avoid similar issues in the future. (Another thing to file under basic: how are psychology and sociology not a factor in considering policies?)

After all, in the end TruPS did seem to be an indicator of troubles:

“Institutions that relied on TruPS for regulatory capital were financially weaker for it, took more risks, and failed more frequently than those that did not.”  FDIC Supervisory Insights, Winter 2010