A 40-year banking legacy [Mississippi Business Journal, The (MS)]

With combat in Vietnam behind him. John Allison came home to Mississippi in search of a new challenge.

He found it at the state Department of Banking and Consumer Finance--industry expansions, contractions, booms and busts and everything in between.

Allison retires Friday and takes with him an institutional memory that accounts for the 40 of the banking department's approximately 100-year history. But he also departs with some advice for his successor:

Use "a lot of common sense, have a lot of patience."

And when judging a bank's condition. "Just go back to the old smell test--or is it 'too good to be true?' "

Keep in mind, he advises, that the commissioner has significant power and must use it wisely. "While we have a pretty big stick up here, I seldom use it."

That stick includes authority to fine banks $5,000 a day, remove bank officers and director and levy fines on them of up to $1,000 a day for mis-actions. "I have threatened to use it to remove some directors which kind of gets their attention," Allison said of the big stick authority.

Often, he said, the action he would take came down to detecting whether the bank's officers and directors "have shown they want to be not be part of the problem but part of the solution."

Criticize as necessary, he advises, but be sure it comes across as constructive.

Coming off the road

Allison, an Olive Branch native who earned a bachelor of business administration degree at the University of Mississippi with an emphasis in finance, signed on with the banking department in February 1972 as an entry-level examiner. Soon, he said, "I was beginning to like what I was doing. And it evolved from there."

"From there" included 20-plus years on the road as an examiner. He said his family had bought into what he was doing but when the opportunity came to stay in one place he took it.

In January 1996, Gov. Ronnie Musgrove appointed him interim commissioner, a post he held through August 1997. Allison said he could have taken the job permanently at that time but it would have entailed a pay cut. "I wasn't born last night," he said.

A sweeter pay deal led him to accept a permanent appointment from Musgrove in 2000. Gov. Haley Barbour reappointed him in 2004 and again in 2008.

With his retirement on the last day of September, he will leave the approximately 60-member department as the longest serving state bank regulator in the nation and as one of the five longest serving chief state banking supervisors.

Over the years, Allison has had numerous offers to "go over" to the banking industry, he said. But the scope of his job--regulating everything financial in the state except for insurance securities and pre-paid funerals--

made the work too compelling to give up, he added. "That's why it's been so interesting and exciting. I have got a dragnet over so many things. It keeps me energized."

Fewer banks, more problems

Early on in his career, Mississippi had close to 150 banks. Today it has 73 but assets have grown to $42 billion.

Some early problems included trouble loans that lingered from destruction caused along the coast by 1969's Hurricane Camille. "Even in the early '70s the coastal counties were still looking at flooding," he said.

The Savings & Loan Crisis that arrived in the mid 1980s damaged Mississippi's economy but an entirely separate deparment regulated the state chartered savings banks at the time, Allison noted

In Allison's view, today's banking crisis has some similarities to the S&L collapse that caused half of the nation's savings banks to fail and forced the government into a $150 billion bailout, an extraordinary sum at the time,

"Some of the same things were going on."

For instance, exotic mortgages. "They caused a lot of the problems," he said.

The homebuilding industry, a huge driver of the economy then and now, fell off the cliff "and everything started slowing down," he said.

If that sounds familiar, it should, Allison added.

Banks in Mississippi and elsewhere "did what they were suppose to do," he insisted.

Not so for the non-depository financial services firms. The firms busied themselves grinding risky mortgages into toxic sausage and selling them in packages they labeled as "A" loans, he said.

Reassurances from the ratings agencies that all was Ok worsened the problems that occurred later.

Meanwhile, real estate values climbed in Mississippi and elsewhere. The equity growth caused bankers to feel assured, especially as they weighed the loan-to-value ratios of the commercial real estate borrowers.

"When it all hit then those values tanked," Allison said.

While Allison hands a large part of the blame to the nations giant banks and investment firms, he thinks "to some extent there has been a little bit of egg on everybody's face."

Knowing your mortgage originator

In recent years, Allison has been involved extensively in helping the Conference of State Banking Supervisors carry out a congressional mandate for a National Mortgage Licensing System. Under the system, loan originators and real estate appraisers must pass a licensing exam and undergo background check. They must also obtain a designated ID number that goes into the systems national database.

Bank officers must also obtain the ID numbers but are not required to take the mortgage licensing exams.

"You can't get ahead of the crooks, but Fannie (Mae) and Freddie (Mac) will track those numbers and see who is doing" any predatory or otherwise illegal mortgages, Allison said.

At Allison's urging, Mississippi has added more stringency to its rules for complying with the National Mortgage Licensing System. For instance, most states won't give you a loan originator license if you have a felony in your past. Mississippi will reject you for a license if you have a misdemeanor that involves the handling of money, according to Allison.

Allison has also been at the forefront of the Conference of Bank Supervisors' efforts to prevent federal regulators from "pre-empting" state regulations on consumer financial protection. The Wall Street Reform and Consumer Protection Act better known as Dodd-Frank, seems to specify states have the right to preemption, but the Office of the Comptroller Currency is challenging that interpretation.

"The dominant thinking is we have a right to oversee the consumer laws in our state," Allison said in a interview soon after Dodd Frank went into effect in mid July.

State regulators take the position they have a unique expertise in local banking practices and local markets, "which makes them uniquely situated to recognize and act upon consumer financial protection issues," said Neil Milner, president& CEO of the Conference of State Banking Supervisors, a body that represents bank supervisors in the 50 states.

Milner, in an interview after Allison announced his retirement, said Allison's chairmanship of the conference in 2005 came at a time when the "state system faced a lot of threats to our ability to continue to be competitive" on the regulatory front."

"He helped enlist support for us to get involved in regulation of the mortgage industry."

What next?

Allison indicated he is unlikely to stay away from banking-related work for long. He said he and his family will be splitting their time between homes in Jackson and Colorado.

For at least the next three or four months, his calendar is clear and will remain that way.

But after that he could be looking for new challenges, just as in 1972.