The ouster of state Banking Commissioner Margie H. Muller last week came after she issued an unusual appeal to the banking industry to pressure the Glendening administration into reversing proposed cuts in her agency.
The appeal to the industry she regulated contributed to her firing, said her boss, Eugene A. Conti Jr., secretary of the Department of Labor, Licensing and Regulation.
In a two-page memorandum to banking leaders, she attacked the Glendening administration's plans to cut the Banking Commission's funds by 25 percent, a move she contends may cost the state a key accreditation of its bank regulation program.
Mrs. Muller also complained that a greater share of banking fees paid to her agency are to be diverted to the state's general fund. This diversion would "promote a 'slush fund' atmosphere in which the true cost of government may be concealed or misrepresented," she wrote.
"If the 1997 reductions are carried out as planned, the field examiner staff will have been reduced from a high of 25 in 1990 to eight," Mrs. Muller wrote. "By comparison, the state of Washington, closest to Maryland in the number and [size] of banks, has 22 field examiners."
Banks in the state are getting larger and need just as much supervision, she said in an interview. And, she noted, regular bank examinations can turn up problems before they become serious enough to threaten an institution's survival.
Mr. Conti, Mrs. Muller's boss, said that the cuts are being made for budgetary reasons, rather than on how many bank examiners are needed to assure the safety and soundness of the 77 state-chartered institutions.
"I don't know what the right number is; she was never able to tell me," Mr. Conti said of the bank examiners. "It seemed in the end that she was interested in protecting her job and her turf."
The memo went out between Christmas and New Year's, at a time when Mr. Conti was considering firing Mrs. Muller.
The commissioner sent the memo to the five executive committee members of the Maryland Bankers' Association, as well as to James T. Brady, state secretary of business and economic development and a highly influential figure in an administration that has made the economy its top priority.
Mrs. Muller's cover letter asked the bankers to appeal to Gov. Parris N. Glendening to restore the $312,000 to the commissioner's $1.4 million budget before the governor submits his 1997 spending plan to the General Assembly.
"My objective was to reach the governor, assuming he did not know how severe the cut would be," Mrs. Muller said. "No one in the department would make the case, so I felt I had to go outside."
Mrs. Muller said she sent a copy to Mr. Conti because she didn't want him to think she had gone behind his back. But she said she believes the letter actually sealed her fate, and Mr. Conti mostly agreed.
"I guess you can interpret it that way," Mr. Conti said. "I had pretty much decided to take action before Christmas. When I came back, this was on my desk. It kind of confirmed what I had to do."
What Mr. Conti did was merge the bank commissioner's office with the consumer credit commissioner's office, which regulates companies that lend money but do not take customer deposits, such as mortgage companies and the credit units of retail stores.
H. Robert Hergenroeder, the consumer credit commissioner, was named acting bank commissioner.
Mr. Conti defended the reorganization, saying it met the need for budget savings. Putting the banking fees into the general fund is an accepted budgeting practice, he said.
The reorganization, which Mr. Conti said will save about $500,000, has drawn mixed reviews from bankers since it was announced Friday.
Some, like Provident Bank of Maryland President Peter Martin, praised the reorganization because it will end separate examinations of different Provident departments by the state credit and bank commissioners.
But Citizens Bancorp President Jeffrey Springer said the consumer credit office mostly enforces laws that have little in common with the bank commissioner's job of examining banks to assure their soundness and to protect depositors.
John B. Bowers Jr., the executive vice president of the bankers association, avoided taking sides in the dispute between the regulator his industry has known for almost 13 years and the Glendening administration.
But he said the reorganized department is likely to be overwhelmed if a proposed federal law is enacted. The law would require savings and loans to convert to bank charters, increasing the work load of state banking examiners if, as he expects, many choose to become state banks.
"How much [regulation] is enough I can't tell you. It's a subjective call," Mr. Bowers said. But he said the possible influx of new banks would be "a tremendous new responsibility for the acting bank commissioner. You can't train a new bank examiner in 48 hours."
The bank commissioner's office regulates 77 state-chartered institutions, with assets of more than $20 billion. It does not regulate federally chartered banks in the state.
But federal regulators do oversee state-chartered banks because the banks buy deposit insurance from the Federal Deposit Insurance Corp., and some are part of the Federal Reserve System.