Candace A. Franks: Regulating Banks at the Worst Possible Time

In 1980, Candace Franks had been exercising her new law license for only a few months in the Arkansas Attorney General's Office when she heard the staff attorney at the State Bank Department was retiring.

Since the Bank Department job paid more, Franks - 26 years old, barely 5 feet tall and universally known as "Candy" - boldly submitted an application and managed to get an interview with the commissioner, Beverly J. Lambert Jr., who was 72 years old. His age alone was enough to persuade Franks' husband, State Farm Insurance agent Roger Franks, that she didn't stand a chance.

"I think it was really to his credit that he did offer me the position," Franks says 30 years later.

Lambert was the first of five commissioners Franks worked for before Gov. Mike Beebe made her the state's 21st bank commissioner on June 13, 2007. All her predecessors were male, of course, and the top executives of banks in Arkansas are still overwhelmingly male, a phenomenon Franks is at a loss to explain. But despite all the testosterone in the industry, she said, she never had any problems being accepted.

Learning From Masters

The commissioners she served as general counsel and with the additional title of deputy commissioner starting in 1995 - Lambert, Marlin Jackson, Bill Ford, Frank White and Robert "Bunny" Adcock - were as different as the seasons. And, unlike Franks, they had all been businessmen and bankers before becoming regulators.

"Having not ever worked in a bank, I don't see that as a disadvantage for being the bank commissioner," she said. "I've experienced banking every day for 30 years."

And she had the benefit of seeing the different approaches of her former bosses.

"I really have incorporated things I learned from each of them," she said. For instance, Ford - "a great administrator" - organized an executive committee that met every Monday morning. And even though e-mail has made instant group communication easier, "I do that now with my staff, and that's very useful for me and for the committee."

Like Jackson, she sends one of her deputies to every board meeting of every bank that needs what Franks delicately called "additional monitoring." In his typical style, Jackson called these "Special Opportunity Banks" and the staffers who attended their meetings the "SOB Team."

Her department continues to offer the banks it regulates a "monthly self-examination" reporting tool that allows the department to make a quick assessment of a bank's condition and provides trend lines so the banks can see how they stack up against their peers. Although the self-exam is voluntary, 92 of the 100 state-chartered banks in Arkansas participate, Franks said.

Keeping state-chartered banks healthy is what the Arkansas State Bank Department does. Banks pay for the work of the Bank Department through annual assessments based on asset size, but the department's ultimate responsibility is to the public.

"The mission of the State Bank Department is to protect the depositors of the state's banks and make sure our banks are operated in a safe and sound manner," Franks said. "But banks are very, very important to the state's economy - especially in a rural state - so while that's our mission, it is also very, very important that we help those banks survive and operate profitably and efficiently."

Twenty-five U.S. banks failed in 2008, 140 in 2009, and 2010 is on pace with last year with 34 failures in the first 10 weeks of the year. The failed institutions have been a mix of state and national charters - including ANB Financial, a national bank chartered in Bentonville that failed in May 2008 - but no Arkansas state-chartered bank has failed since 1986.

Franks acknowledged that a number of Arkansas banks had been "encouraged" to find buyers over the years. "It's a very sad day when we lose a bank," she said, not sounding at all certain that it will be another 26 years before a state bank fails.

"This economic downturn has been very different," she said. "That sounds trite because everyone says that - but that's because it really is. Things happened more quickly than in any time we've ever seen."

Which is not to say that there weren't warning signs or that the state's bank regulators missed them.

"We are not quite as optimistic as some of our institutions, and we did begin to see the signs about three years before the institutions did. And we did voice concerns about over-exuberance," she said.

Predictably, she cited real estate loans as the biggest problem for banks in Arkansas. "And predominantly the problems are in northwest Arkansas. That's always been such an economic benefit for the state. I know they will work through this, but it will take time."

Fortunately, banks in the Delta region, which in some years have caused regulators the most heartburn, have benefited from improved profitability in the agriculture sector. But even those banks have not been immune to the real estate woes of the northwest corner. "Northwest Arkansas has really affected the whole state to some degree," Franks said.

And there's a limit to how much help the Bank Department can be when a bank is on the rocks. Some provisions of state banking law are very specific, she said, and the department can't offer any flexibility in regulation.

Where Are the Women?

Franks is undoubtedly the most influential woman in the banking sector in Arkansas, in part because there are so few women running banks in the state. The Bank of Fayetteville is the largest bank in the state to have a woman CEO, Mary Beth Brooks. And while there are a number of high-ranking women bank executives around the state, there are only a handful of others who have the CEO title: Carol Reaves at Security Bank of Stephens, Mary Fowler at Peoples Bank of Magnolia and, the pioneer Franks specifically mentioned, Paula Blackwell of Piggott State Bank.

Candy Franks has had decades to consider the question of why there are so few women at the top, and she still can't pin it down.

"I don't really know. Banking has traditionally been a male-dominated field and has continued to be, although there are many women bank employees," she said. "I would like to see more women reach those levels in this profession because I've never had any issues being a female in this profession. I've always felt like I was treated very fairly."