WASHINGTON -- In the mid-1980s, when a troublesome banking regulation stood in the way of the freewheeling plans of Charles H. Keating Jr., he didn't just lie down and moan about bad breaks.
He took action.
First, he offered a savings and loan job to the chief enforcer of the regulation, Federal Home Loan Bank Board Chairman Edwin J. Gray.
When Mr. Gray refused, Mr. Keating pushed for his dismissal and worked to place his own man on Mr. Gray's board of directors.
Through it all Mr. Keating paid, patronized and petitioned members of Congress almost non-stop, then sought their help. They, too, failed to dislodge Mr. Gray or his regulation, and in 1989 the struggle became moot when Mr. Keating's Lincoln Savings and Loan Association failed financially, leaving behind a burial cost of $2.3 billion for taxpayers.
But Mr. Keating's tactics remain relevant, and not only because they are at the center of the case against the "Keating Five" senators accused of helping him in exchange for political contributions. Mr. Keating's doings, documented in mounds of evidence collected by the Senate Select Committee on Ethics, offer a glimpse of the way some parts of the thrift industry tried to undermine federal rules through most of the 1980s, even as the industry slipped toward the $500 billion disaster of the current nationwide savings and loan crisis.
Mr. Gray, often the industry's target during his 1983-1987 term, scorned its methods but couldn't help admiring their effectiveness.
"These people played their political cards like masters in order to keep the regulators at bay," he told the ethics committee Monday, then added a few days later, "I think the influence of the thrift lobby killed all the reforms that we sought. Every single reform that I sent up to the [banking] committee never saw the light of day."
The rule that attracted most of Mr. Keating's ire, and most of the lawmakers' attention, was the direct-equity-investment rule. Adopted in January 1985 as a curb against risky investments by "high flying" S&Ls, the rule barred thrifts from putting more than 10 percent of their assets into more speculative direct-equity investments such as resort hotels and debt-heavy leveraged buyouts of businesses.
Mr. Keating began attacking the rule before its adoption, seeing it only as something that would stunt Lincoln's booming growth in such ventures. By taking advantage of 1982 congressional deregulation and even more liberal thrift deregulation in California, the California-chartered thrift virtually deserted the more traditional home mortgage loan market when Mr. Keating took it over in 1984.
Mr. Keating was hardly the only member of the thrift industry to launch a pre-emptive strike against the direct-investment rule. But witnesses in the ethics hearings describe him as especially active on Capitol Hill, and his appeal for help set off a flurry of letters by lawmakers to Mr. Gray.
Included in the ethics committee file were letters from four of the five senators whose conduct is being reviewed by the committee -- Alan Cranston, D-Calif., Dennis DeConcini, D-Ariz., John Glenn, D-Ohio, and John McCain, R-Ariz. (who was then a member of the House of Representatives). They, along with the fifth senator accused of unethical conduct, Sen. Donald W. Riegle Jr., D-Mich., say they did nothing improper for Mr. Keating.
They maintain that their efforts were only attempts to help a business that had a big economic impact in their states, and they say Mr. Keating's contributions did not influence them.
Ethics committee special counsel Robert Bennett acknowledges that congressional intervention is a necessary check on the federal bureaucracy, but he has suggested that Senators Cranston and DeConcini went too far in some of their actions.
Whatever the case, the regulators held firm against the initial barrage of letters, and the direct-investment rule stood. So, Mr. Keating tried a more direct approach in fall 1985, which Mr. Gray described last week.
Bank board member Mary Grigsby telephoned him in his car and told him "she wanted to talk with me but not on the car phone," Mr. Gray said. He went into an office building and called her back on a pay phone, and she told him "she had received a phone call from a lawyer in Washington who told her a major Southern California savings institution wanted to hire me to head the association, and the institution was prepared to pay me a lot of money."
Mr. Gray found out the association was Lincoln, and he sent his chief of staff to a breakfast meeting with Mr. Keating to decline the offer. After that, according to Mr. Bennett, "Mr. Keating decided to engage in an all-out war with chairman Gray and the board."