WASHINGTON - When James Gilleran leaves his fifth-floor office near the White House today, the Office of Thrift Supervision director will close the door on one of the most polarizing stints by a banking regulator in recent memory.
At the OTS he inspired devotion from his supporters and disgust from his detractors.
Many bankers, frustrated by what they have seen as an avalanche of red tape from the federal government, said Mr. Gilleran spent his 41-month tenure strengthening the vulnerable thrift charter and prodding other regulators, which he felt were not moving quickly enough to rationalize the rules.
"I think he saved the OTS," said Craig Hudson, the executive director of California Independent Bankers. "He stepped into the breach and made it a much more viable institution."
But many consumer advocates saw the 71-year-old former banker as a one-man wrecking ball who declared war on the Community Reinvestment Act four months after he took office and kept blasting away until he resigned.
"He believed in what he believed in, and he stood for it," said John Taylor, the president of the National Community Reinvestment Coalition. "It just happened to be the antithesis of community reinvestment and fair lending."
Both his advocates and his critics agree that they have always known where they stood with Mr. Gilleran. He has been both blunt and consistent. At the OTS, he set goals that few thought were achievable, and he occasionally pulled off a major feat, though there was almost always a backlash.
For example, just months after taking office Mr. Gilleran announced that the OTS was trimming its budget, cutting its staff (20% eventually left), and simplifying its exam structure. The 16-year-old agency was operating at a deficit, and calls were growing for it to merge with the Office of the Comptroller of the Currency, because of thrifts' switching charters.
"After 30 years in the business, I've become if nothing else a cynic," said John P. Marvin, the president of the $50 million-asset Raymond Federal Bank in Washington. "I thought this guy was nuts. You can't turn the Queen Mary on a dime."
But bankers were surprised that the new exams - which combined safety and soundness with compliance - were implemented so quickly and instantly reduced compliance time. Mr. Marvin said that the old exams usually consumed two months, but the newer, risk-focused ones take only three weeks.
Herbert Sandler, a co-chairman and co-chief executive of Golden West Financial Corp., the parent of World Savings Bank, said he was nervous about the restructuring. "We are a company that feels very strongly that if you are a well-run company, you have to have a tough, smart regulator. We were worried it was going to weaken thrifts. Although I was really disturbed, it ended up helping out."
Like most of the things Mr. Gilleran did, the restructuring was not unanimously embraced. In June 2002 members of a Chicago community group held a demonstration outside his house. Consumer advocates and some Democrats worried that his new policies were weakening the OTS' ability to monitor compliance with laws like the Community Reinvestment Act.
"I disagreed with him on most things that came before him. On CRA, I thought he was much too strict in his positions," said Rep. Barney Frank, the ranking Democrat on the House Financial Services Committee.
Mr. Taylor invited Mr. Gilleran to speak at the National Community Reinvestment Coalition's annual conference in Washington in March 2002. When the director began his remarks, consumer advocates were shocked at his expressed indifference to enforcing the act, Mr. Taylor said.
"He said, 'I never liked CRA, but now that I am in charge, I guess I have to enforce it,' " Mr. Taylor said. "There were 600 people from community groups sitting in the room. They were all thinking, 'Was that supposed to be funny?' "
Mr. Gilleran refused to be interviewed for almost every American Banker article about the OTS during his tenure, including this one. An OTS spokesman disputed Mr. Taylor's recollection of the extemporaneous speech.
"Director Gilleran does not recall ever making this statement, and it is inconsistent with his views on CRA, then and now," the spokesman said. "All the recent actions that OTS has taken on CRA have been to reduce regulatory burden, consistent with the statutory purposes of CRA, and to allow institutions to better focus on serving their communities and fulfilling their CRA responsibilities. We believe our changes have accomplished that."
However, Matt Lee, the director of Inner City Press/Fair Finance Watch, who was also at the conference, confirmed Mr. Taylor's account of the speech.
That speech marked the beginning of major changes to how the CRA was enforced. Mr. Taylor pointed out that during Mr. Gilleran's time in office just one thrift has received the lowest CRA grade - substantial noncompliance. Before that at least one thrift a year got the grade, and in most years at least two got it, according to OTS records.
Richard M. Riccobono, the agency's deputy director, said the fact that only one thrift got the lowest grade during Mr. Gilleran's tenure is not a sign of lax enforcement but showed that Mr. Gilleran had little tolerance for poor community lending and forced companies with weak programs to strengthen them.
"The difference was, Jim said, 'Get that thing fixed,' " Mr. Riccobono said in an interview.
In February 2004 the OTS, along with the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. pushed a plan to let banking companies with $500 million of assets qualify for streamlined exams that make it easier to satisfy CRA requirements. Previously, only banks with less than $250 million had qualified.
Though many lenders welcomed the plan, they wanted the cap to be even higher. So did Mr. Gilleran.
Interagency negotiations were tense. They reached a standstill at a high-level meeting held July 15 at the Fed's headquarters among Mr. Gilleran, then Comptroller of the Currency John D. Hawke Jr., Fed Governor Edward Gramlich, and FDIC Chairman Don Powell.
According to several people familiar with what happened at that meeting, Mr. Gilleran left that day convinced that the agencies were not going to agree and that he would have to make any change on his own.
The next day he proposed letting thrifts with less than $1 billion qualify for the streamlined exam.
"The conversation was over," Mr. Gilleran said several months later at an America's Community Bankers convention. "After several years of discussion, I think the conclusion was that nothing was going to happen. Therefore, I did something because I feel personally very strongly" about reducing the regulatory burden.
Last month the Fed, the FDIC, and the OCC proposed a different change for commercial banks, and critics worry that there could be inconsistency in enforcement.
Mr. Gilleran's move, though embraced by many in the industry, mobilized community groups and elicited more than 4,000 comment letters. The plan even drew a rebuke in an editorial in The New York Times, and the negative attention irked Republican strategists trying to secure President Bush's reelection.
But Mr. Gilleran was becoming known for fighting to get his agency recognition. Once its budget was stabilized in 2003, he set his sights on making the OTS charter more competitive. He fought to be included on the Basel Committee on Banking Supervision, the international consortium of regulators drafting new capital standards. The OTS never gained a seat, but he won a victory by being allowed to attend meetings and serve as an adviser.
He next sent a delegation to Europe in an effort to convince regulators there that the OTS was qualified as a consolidated supervisor to handle U.S. companies with international branches. The proposal was approved, and now the OTS has the status exclusively. Both the Fed and the Securities and Exchange Commission are lobbying to be included.
Mr. Gilleran's official term at the OTS ended just 10 months after he took office, because he had been nominated to fill an unexpired term. When the White House approached him two years ago about renewing his term, he told them to hold off, because he expected his Senate confirmation to be hotly contested, given the heat he was taking on some of his new policies.
Mr. Riccobono recalled that Mr. Gilleran said, "'I'm not a slam dunk here. This is going to be a process.' "
He continued to run the OTS without a term, so he was vulnerable this year when the White House nominated John Dugan, a Republican lawyer, to be the comptroller. To make room for Mr. Dugan on the FDIC board, one of its other Republicans - Mr. Gilleran, FDIC Chairman Don Powell, or Vice Chairman John Reich - had to go. (The five-member board may have no more than three members from one party.) Mr. Gilleran was the only one whose term had expired.
Despite the fights he picked and his knack for taking on major reforms that few thought had a chance, he was also known among colleagues for having a lighter side. Observers who sat with him at luncheons said he was more likely to talk about his family than about policy.
The common thread of almost every policy change Mr. Gilleran introduced was an attempt to make it easier for businesses to operate. Mr. Riccobono said that Mr. Gilleran would insist, "'If we don't do something here, we are killing the small-business men and women in America with this regulatory burden.' "
At a 2003 press event to demonstrate that regulators were cutting red tape, several officials held gardening shears. Mr. Gilleran held a chainsaw. His planned successor, Mr. Reich, has also campaigned against the regulatory burden, but it is unclear whether he will demonstrate the same zeal for the issue.
Mr. Gilleran is said to have interviewed to be the president of the Federal Home Loan Bank of Seattle, but bank officials are viewed as preferring someone from the private sector.
Whatever his next move, his legacy at the OTS will endure.
Mr. Gilleran "was very forceful in making his views known," said Diane Casey-Landry, the president of America's Community Bankers. "He stood up to make a decision. People didn't always like the decisions, but he said 'This is my job. I get to make these decisions.' "
