The Keating Five

Quick Summary

The Keating Five were five U.S. Senators who intervened with federal banking regulators on behalf of Charles H. Keating Jr., chairman of Lincoln Savings and Loan Association, after collectively receiving approximately $1.3 million in campaign contributions from Keating. The senators attended two meetings with regulators in April 1987, pressuring them to ease their examination of Lincoln Savings. When Lincoln collapsed in 1989, it cost taxpayers approximately $3.4 billion. The Senate Ethics Committee investigated all five senators in 1990–1991, reprimanding Alan Cranston for "substantial and improper" conduct and criticizing the other four for poor judgment.

Timeline of Events

The Details

The Keating Five case became a defining example of the intersection between campaign contributions and political favors. Charles Keating, a Phoenix businessman and anti-pornography activist, had acquired Lincoln Savings in 1984 and transformed it from a conservative home-mortgage lender into an aggressive investor in commercial real estate, junk bonds, and other speculative ventures. As regulators began scrutinizing Lincoln's risky portfolio, Keating sought political protection.

Keating was remarkably explicit about his expectations. He told reporters: "One question, among the many raised in recent weeks, had to do with whether my financial support in any way influenced several political figures to take up my cause. I want to say in the most forceful way I can: I certainly hope so."

The two meetings in April 1987 were the central events. At the April 2 meeting with FHLBB Chairman Ed Gray, the senators inquired about the status of the Lincoln examination. Gray, who felt intimidated, referred them to the San Francisco examiners. At the April 9 meeting, the senators pressed the examiners on why Lincoln was being treated differently from other thrifts. The examiners testified that they felt the senators were pressuring them to ease up. Examiner William Black later described the meetings as an attempt to interfere with the regulatory process.

The levels of involvement varied significantly. Senator Cranston's connection was the deepest: he received approximately $889,000 from Keating (including contributions to voter registration organizations Cranston controlled) and made multiple direct interventions with regulators. DeConcini arranged the meetings and was the most aggressive questioner. Riegle attended the April 9 meeting and had received contributions. Glenn attended both meetings and had received $200,000 for a political action committee. McCain's involvement was the most limited: he attended one meeting, subsequently withdrew from the effort, and his contributions ($112,000) included campaign donations and family vacation flights on Keating's jet.

The delay in regulatory action was costly. The FHLBB examiners had recommended seizing Lincoln in 1987. The two-year delay between the senators' intervention and the eventual seizure in April 1989 allowed Lincoln to continue losing money, ultimately increasing the cost to taxpayers by an estimated $2 billion.

What Happened

The Senate Ethics Committee, chaired by Senator Howell Heflin and with Special Counsel Robert Bennett, conducted nationally televised hearings from November 1990 to January 1991. The committee's findings, released February 27, 1991, varied by senator:

• Alan Cranston (D-CA): Reprimanded by the full Senate for "substantial and improper" conduct. The strongest sanction, but less than the censure some called for. Cranston did not seek re-election in 1992 and died in 2000.
• Dennis DeConcini (D-AZ): Criticized for conduct that "gave the appearance of being improper." Did not seek re-election in 1994.
• Donald Riegle (D-MI): Criticized for conduct that "gave the appearance of being improper." Did not seek re-election in 1994.
• John Glenn (D-OH): Criticized for "poor judgment" but cleared of improper conduct. Re-elected in 1992; retired in 1999. Died in 2016.
• John McCain (R-AZ): Criticized for "poor judgment" but cleared of improper conduct. Went on to serve in the Senate until his death in 2018, running for president in 2000 and 2008. Made campaign finance reform a signature issue.

Charles Keating was convicted of fraud in both state and federal courts, but both convictions were later overturned on technical grounds. He ultimately pleaded guilty to four counts of fraud and was sentenced to time served (approximately 4.5 years). Lincoln Savings' collapse cost taxpayers $3.4 billion.

Financial Impact

The 23,000 bondholders, many elderly, who had purchased subordinated debentures at Lincoln's branches, misled into believing the instruments were federally insured, lost their investments. The Resolution Trust Corporation eventually recovered some assets, but the net cost to the S&L insurance fund was approximately $3.4 billion, making Lincoln one of the most expensive thrift failures in the broader savings and loan crisis that cost taxpayers an estimated $132 billion total.

Connections

Sources