Two more Wilmington Trust officials have been sentenced to jail this week. William North, the bank’s chief credit officer, has been sentenced to 4-and-a-half years in jail and will also have to pay a $100, 000 fine as a result of his role in misleading investors.
Update: The convictions of four men were quashed on appeal.
William North and Kevyn Rakowski
North, along with Kevyn Rakowski, who received a three-year prison sentence, were found to mislead investors and federal regulators. The charges are related to the bank bailout program that was spurred by the 2008 financial crisis.
Robert Harra Jr., the bank’s former president, was sentenced to six years in jail just two days prior to the sentencing.
Jurors found that the bank’s executives hid the truth about the bank’s financial standing prior to the bank being sold. The executives hid the $316 million in past due loans when they reported that just $10.8 million in commercial loans were 90 days or more overdue.
The bank would receive $330 million as a result of the concealment, receiving the funds from the Troubled Asset Relief Program.
The convictions are all expected to be appealed, and lawyers for the defendants are likely to request that all of the persons involved be allowed to remain free on bail for the year or more it will take to go through appeals.
North, unlike others involved, chose to address the court, stating that he has respect for the process and verdict.
Rakowski also apologized for her actions, claiming that she should have taken a more active role in addressing the issues.
North was responsible for a waiver program, dating as far back as 2007, which would waive loans that may cause concerns among examiners and auditors. Despite sending out warnings about loans and the way that they were handled, North continued to allow these loans to effectively be hidden with waivers.
The bank would conceal its financial situation until 2011, raising $287 million from investors during this time and eventually selling to M&T Bank.
Shareholders and investors in the bank lost out on the deal due to the waiver program and the bank hiding its true debts and loans that were overdue. Wilmington Trust Corp. has also been held responsible for its actions. The company has been ordered to pay $60 million in one verdict and an additional $200 million in cash as a result of a shareholder lawsuit.
Investors suffered severe losses when the bank was sold and hundreds of employees lost their jobs in the process.
Strict Rules and Regulations
The banking industry has been under a microscope since the financial crisis, leading to stricter rules and regulations. New loan products have been devised to help borrowers find the best loan option for their needs. An increase in bad credit payday lenders has also been experienced, as many consumers struggle to build their credit scores.
Changes in lending have led to stricter rules and regulations for lenders with the Consumer Financial Protection Bureau (CFPB). One major change is the encouragement of mainstream banks to offer loan options, often short-term, to consumers to help them stay away from predatory practices from smaller lenders.
The CFPB, under new leadership, may be dismantling the rules before it goes into law thanks to the lobbying from two industry groups. The rule, which was to go into effect in 2019, would then be changed to allow two years before lenders would have to comply.
When a new director stepped in, he then changed his tune. He claimed that the rule needed to be reviewed and that it’s better to focus on a consumer’s ability to pay rather than high interest rates.
Rising federal rates are also going to be a concern for many borrowers and financial institutions, as loan payments will be higher and make the risk of defaulting on the loan higher.
Democrats: Accountability Through Regulation
Democrats are expected to keep the slacking bank regulations in their focus going into 2019. Democrats will take over the House in 2019, after two years of relaxed scrutiny under Republican control. Destructive policies, many of which have been blamed for the previous financial crisis, are starting to be used again.
The new House is expected to bring accountability back to the bank industry through regulatory agencies. These agencies will now be focusing on the laws and regulations that have been overlooked in recent years.
Deregulation over the last two years have led to significant changes in the Dodd-Frank reforms that include fewer stress tests for major banks and also diluting the liquidity rules of banks. Critics claim that many of the changes put banks under significant risk of failure, allowing the same actions to be taken post-crisis. Compliance burdens have been greatly reduced, too, as many bankers have stated.