Business Cover

The Regulator

First appointed OFI commissioner by Gov. Blanco in 2004, Acadiana native John Ducrest’s determined effort in the aftermath of the 2005 hurricane season won him widespread admiration from bankers across the state — and a reappointment by Gov. Jindal.

While many leaders across the state were withering under pressure in the aftermath of hurricanes Katrina and Rita, one official stood steady — Office of Financial Institutions Commissioner John Ducrest. Shortly after his appointment by Gov. Kathleen Blanco to the state’s top banking regulatory position, Ducrest was put to the test when Katrina decimated the Gulf Coast in August 2005, followed by Hurricane Rita a month later. The storms heavily damaged or completely destroyed many banking institutions in south Louisiana, forcing thousands of consumers to scramble for funds. After the surge subsided, Ducrest worked tirelessly to get Louisiana’s banks back online.

Within a couple of weeks after Katrina, he spearheaded a shared-branching plan, where up to six different banks operated teller windows at one bank location, so that storm victims could have access to their money. “In any type of a crisis situation, you kind of learn about people pretty quickly,” observes Robert T. Taylor, chief executive officer of the Louisiana Bankers Association. “And, one of the things that became evident very quickly was that John really responded very aggressively and very appropriately to the events after the hurricanes. He earned a lot of respect from all of the bankers through that whole period,” Taylor adds.

“John Ducrest did an unbelievable job working very hard for the banks in this state after hurricanes Katrina and Rita, making sure that those banks were open to serve their customers,” says Rusty Cloutier, president and CEO of MidSouth Bank and past chairman of the Independent Community Bankers of America. “The man spent days without sleep and didn’t see his family for months. And, believe me, we respect a great deal what he did for the banks in New Orleans, Lake Charles and every area of the state.”

His tireless efforts did not go unnoticed. After Gov. Bobby Jindal’s election, the state’s most powerful banking associations rallied together, writing letters, making phone calls, and garnering support for Ducrest’s reappointment.

“We lobbied as hard as we could to make sure that John Ducrest remained the commissioner,” says Paul Durand, president and CEO of St. Martin Bank & Trust Co. “I have been knowing John for probably 20 years. I knew him when he was just a state bank examiner, and I followed his career all the way to commissioner. As far as for commissioners, he is the most user-friendly commissioner that we have ever had. He participates in our events, he attends trade association meetings and conventions, and we’ve never had a commissioner do that on a regular basis. He’s a breath of fresh air.”

Ducrest’s performance under pressure was not the only reason he garnered widespread support for reappointment. “I think one of the things that I’ve discovered in working with John is that when you are working with the government and trying to represent the bank, you’ve got to be able to agree to disagree,” LBA’s Taylor says. “And, I’ve worked with people who can’t do that. I think that’s probably his strongest suit — if there’s a problem, he’s going to want to solve that problem.”

Cloutier also stresses how critical Ducrest’s role may be during this time of uncertainty for the state’s banking industry. While the industry has thus far emerged from the credit crisis with only minor bruising, subprime contagion — the extent to which this mortgage debacle will spill over into other markets and hurt Louisiana’s economy — remains a looming question. Local bankers are taking comfort in knowing there is career regulator, not just a political appointee, in Baton Rouge keeping a close eye on all of this. Cloutier says they know Ducrest is ready to work doggedly should subprime contagion materially affect any of Louisiana’s banks.

Maintains Durand, “Statewide, he has created open lines of communication between bankers and the state bank regulators in a way that we have never had before. There’s just a great deal of comfort level knowing that I can call Baton Rouge, and I ask for John, or I can ask for any of the people that work for him, and there’s no need for me to be anxious because I am talking to a bank regulator.”

As a member of the Community Bankers’ Group of Southeast Louisiana, a collaboration of locally-owned banks from Orleans, Jefferson, St. Bernard, St. Tammany and Plaquemines parishes, Guy T. Williams also supported Ducrest’s reappointment. Williams, president of New Orleans-based Gulf Coast Bank & Trust, backed a letter the group wrote to Jindal. “He really has been an exemplary employee, and someone who has done a wonderful job for the industry and the state,” Williams says. “First, he has a good background. He knows what’s involved. Second, he’s really committed to seeing Louisiana do well, and he recognizes that banks are the engine that provide the money for all the small business, for all of consumer lending. So, his objective is to make sure the banking community does well.”

Ducrest rose through the ranks to become the state’s top banking regulator. His first job out of college — he earned a degree in business administration from UL Lafayette — was at OFI’s Lafayette office as a field examiner regulating banking institutions. In 1994, he was promoted to deputy chief examiner over the corporate section, where he oversaw bank mergers, new bank formations, and branch banking. Then, in June 2004, during the Blanco administration, he was appointed to replace former state Rep. John Travis as commissioner. On Jan. 10 Gov. Jindal reappointed the 47-year-old to the post.

While working full-time at OFI, Ducrest became a CPA, a Certified Fraud Examiner and completed the three-year program at the Graduate School of Banking at Louisiana State University, since 1994 commuting to OFI’s executive offices in Baton Rouge. “It’s been no problem,” he says. “You get used to it after a while.”

Acadiana Business interviewed the Acadiana native shortly after his January reappointment.

How did you end up in the bank regulation field?

I really didn’t have a clue what I was going to do when I got out of college in 1984. And, I just ended up at the [OFI] department. Our Lafayette office was expanding at that time, and I ended up at the office as a field examiner. We closed a lot of banks, a lot of thrifts. It was a pretty tough time in banking. So, as an examiner, we were pretty busy back then.

What are your primary responsibilities as head of OFI?

Our office ensures the safety and soundness and the compliance with applicable laws for all Louisiana state-chartered financial institutions (banks, savings and loans, and credit unions). I also serve as the Commissioner of Securities, whereby we license investment advisers and broker dealers, as well as the registration of security offerings within Louisiana. Lastly, we perform examinations of various non-depository programs (finance companies, mortgage lenders and originators, pawnshops, etc.) to determine compliance with various state consumer protection laws.

**How has banking changed during your tenure at OFI?
Well, the tough part of banking was related to the condition of banks, with the crisis we had in the oil industry. All collateral was impacted and, therefore, customers weren’t able to pay back loans, banks had losses, and losses deteriorated capital. When we do our exams, examiners will come up with a rating for each bank of between 1 and 5 — 1 is an absolutely sound bank, and 5 is a bank that’s about to close. Back in the 1980s, there were huge numbers in 3s, 4s, and some 5s. And today, there are no 5-rated banks in the state, and only one 4-rated bank. So, the condition of banks is dramatically different.

What is the reason for the dramatic change since the 1980s?

The long run of the good economy that we’ve had. And, another part of it is that the bank presidents of today were loan officers during the 1980s. They saw a lot of the things that caused problems, and they know how to stay away from those types of deals now.
Generally, what is the state of banking in Louisiana today?**

The state of banking is strong. We examine banks on a 12- to 18-month cycle. Even after two rounds of examinations of all Katrina- and Rita-impacted institutions, 97 percent of all banks in the state have the two highest examination ratings.

Has the nationwide subprime mortgage crisis impacted Louisiana?

A lot of the turmoil in the mortgage industry today relates to some of the funding that the very largest banks did on collateralized debt obligations. The community banks and the smaller banks weren’t involved in the funding of these exotic mortgages. If you look at the rust belt, in the high-growth real estate states, like Arizona, Nevada, California and Florida, where realty prices were really appreciating very quickly, you saw a lot of exotic mortgages — the option arms, where you cannot even pay your whole interest that month, and your loan balance gets bigger every month; and these teaser rate arm loans, where you had a 2 percent rate for some period of time, then it adjusted later. They weren’t underwritten to the customer’s ability to pay at a higher rate. I think Louisiana is 41st in the nation in the rate of foreclosure. And when you look at Katrina and Rita and the impact of those storms, it’s pretty amazing that it’s still fairly low. The fact that our economy is doing well, coupled with the minimal use of those more exotic mortgages, are reasons for the low foreclosure rate in Louisiana.

What do you think the impact of foreign capital contributions to U.S. banks is going to be?

Look at the amount, in the last month or two, of the foreign investors who have elected to invest in these large banks that have had very big write-downs on their mortgage portfolios. That’s a sign of confidence, if you are talking about the dollars they are putting into these large banks and acquiring these amounts of equity in these large banks. It says something about what these investors think about the future of the large banks.

Do you think that Congress is going to close the Industrial Loan Company loophole on commercial entities?

The general ban in banking is on commercial ownership — you can’t have commercial companies owning banks. So, there are two bills I know of in Congress. One is (House Financial Services Committee) Chairman Barney Frank’s bill, which says you can have ILCs if they are 85 percent financial in nature. The other is (Senate Banking Committee) Chairman Christopher Dodd’s bill, which just moved out of committee. (It allows existing ILCs to continue, but prohibits new applications from non-financial companies.) So, Wal-Mart withdrew its ILC, and there is a debate going on right now as to whether Congress should do some kind of ban on ILCs structurally with respect to commercial ownership.

Back to Louisiana politics, what would you say are your primary accomplishments or legislation that was proposed or passed in the past few years by your office?

On the accomplishments front, it was our office’s response to hurricanes Rita and Katrina. Within days after the storm, we assisted financial institutions in reopening locations in the impacted areas. We coordinated security through the National Guard and local police, interacted with telecommunications companies to assist with the reestablishment of telephone connections, and basically worked to ensure that whatever was needed to reconnect the citizens impacted by the storms with their financial institution was accomplished. On the legislative front, it was assisting with the defeat of a bill that would have allowed “title lending” within Louisiana. These loans are similar to a payday loan; however, the loan would have been secured by the vehicle. This form of secured lending at payday rates was bad policy, and Gov. Blanco ensured the timely death of this bill.

Any thoughts on Richard Baker’s decision to step down as chair of the House Financial Services Subcommittee and take the job with the hedge fund group?

Rep. Baker has been a national leader on the House Financial Services committee, providing keen insight in complex areas of financial services legislation. I wish him luck in his new endeavors.
OK, so it seems you don’t want to comment on that, and it is a bit controversial. On the other hand, any comments on Sen. Mike Michot’s new position as chair of the state Finance Committee?**

I am very excited about the appointment. Our office has worked very closely with him over the past several years in his role as vice-chair of Senate Commerce. Sen. Michot has authored many bills on our behalf and has worked hard to ensure their passage. I am also very optimistic about the potential of the entire Acadiana delegation. We have a talented, energetic group of legislators who have the ability and background to represent this area well.

Can you please share some of your thoughts on the incoming Jindal administration, as well as why you think you made it through to another administration?

Several things come to mind. First, my more that 22 years of employment with our office gives me a solid grasp of the issues affecting the many industries we are charged with regulating, Secondly, I would say our office’s response to the hurricanes. Following the storms, we immediately began working with the industry to ensure that institutions operating in impacted areas had access to cash. These areas were basically cash societies and, after the closure of so many banks during the 1980s, we could not allow a situation to occur in which a bank was unable to assist in the immediate cash needs of their customers. Lastly, I would say that it was our approach to addressing issues that come before our office. We strive hard to be a responsive, but responsible regulator.
Any specific goals during this term as OFI commissioner?**

Mainly to continue to be as responsive as we can to fulfilling our duty as a regulator. It’s a lot of regulatory burden, especially on the banking side. We need to continue working on doing our job more and minimizing our impact on the institutions we regulate. And — no bank failures.