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FDK
NEWS
PR-27-76 (3-26-76)
FOR RELEASE UPON DELIVERY
a
t
Statement on
MAR26
S . 2304, 9 4 t h Congre
1976
A bill "To strengthen the supervisory authol
of the Federal banking agencies over financial
institutions and their affiliates."
Presented to -fKC
M
|: Sei\o,Xc
Committee on Banking, Housing and Urban Affairs j
w ;’
United States Senate
by
&
Robert E. Barnett, Chairman
Federal Deposit insurance Corporation
t
March 26, 1976 -
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IRANCE CORPORATION. 550 Seventeenth St. N.W., Washington, D C. 2042S
•
202 389 422i
I appreciate this opportunity to testify in support of S. 2304,
94th Congress, a bill "To strengthen the supervisory authority of the
Federal banking agencies over financial institutions and their affiliates".
As you know, the bill was proposed jointly by the FDIC, the Comptroller of
the Currency and the Federal Reserve.
Its enactment would provide much
needed assistance for preventing certain types of abuses that in the past
have led some banks to fail and would better enable the regulatory agencies
in the future to attempt to correct such "problem bank" situations before
they reach the terminal stage.
The need for this type of legislation
was underscored by former FDIC Chairman Frank Wille in his July 21, 1975
statement before the House Committee on Financial Institutions Supervision,
Regulation and Insurance, a copy of which is attached hereto as Appendix A.
In his September 5, 1975 letter to Senator Proxmire forwarding this
proposed legislation to the Congress, Federal Reserve Chairman Arthur Burns
discussed in some detail the background circumstances giving rise to this
proposal.
I will briefly summarize these circumstances to refresh the
Committee's memory in this regard.
CIVIL PENALTIES
In a number of areas of bank regulation there is no totally effective
deterrent to violation of various limitations and restrictions imposed by
Federal statute.
Although such violations can severely affect a bank's
safety and soundness, the only sanction a bank faces in some cases is the
possible issuance of a cease and desist order requiring it to reverse a
particular transaction or to refrain from committing similar future
violations.
One example is section 23A of the Federal Reserve Act which
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(in conjunction with section 18(j) of the Federal Deposit Insurance Act)
imposes stringent limitations on loans and other dealings between insured
banks and their affiliates.
However, since there are no specific penalties
for violation thereof, a bank holding company or other person experiencing
financial pressure may cause a subsidiary bank to violate such restrictions
knowing that, if such violations are discovered, the only sanction would be
the possible issuance of a cease and desist order designed to rectify the
violation and prevent further such transgressions.
While the cease and desist order is quite useful for some purposes, it
is not as significant a deterrent to violations of restrictions on inter
affiliate or insider lending as a daily money penalty would be.
Accordingly,
sections 1 and 7 of the bill would authorize the Federal Reserve and the FDIC
to impose up to $1,000 per day civil penalties for violations of section 23A
of the Federal Reserve Act relating to inter-afflliate dealings or section 22
of the Federal Reserve Act covering bank loans to their own executive officers.
Similarly, section 2 of the bill would authorize the imposition of up to $100
per day civil penalties for violations of Regulation Q type restrictions re
lating to the payment of interest on deposits (S 19 of the Federal Reserve Act).
In addition, section 6(e) of the bill would authorize the imposition of a
civil penalty against any bank or any officer, director, employee, agent or
other person participating in the bank's affairs for violation of a cease
and desist order or consent agreement which has become final under section 8(b)
or (c) of the Federal Deposit Insurance Act.
Section 6(e) would provide for a
civil penalty of up to $10,000 for each day the offending bank or individual
willfully refuses to obey the order.
The authority to impose such a fine for
violating a final cease and desist order would serve to emphasize the gravity
of such an order.
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3
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Under section 8(k) of the FDI Act, a cease and desist order does not
become final unless entered into by consent or until the time has run for
filing a petition for review with the appropriate U. S. Court of Appeals
and no petition has been filed or perfected, or the petition so filed is
not subject to further review by the Supreme Court.
In either event, the
party must have exhausted the administrative and judicial remedies afforded
to him under the Act.
If the party then continues to disobey an order, the
appropriate agency can apply to the proper U. S. District Court to secure
its enforcement.
However, the threat of a court enforcement and possible
contempt proceedings should not be the only deterrent at this point.
party has been given every opportunity to have his day m
court.
The
He should
not be allowed to further impede the effect of the order simply to secure
another delay and should be subject to a substantial monetary penalty for
each day that he does so, as provided in the bill.
In imposing civil money penalties under the bill's provisions, the
appropriate bank regulatory agency would be required to take into account
the financial resources and the good faith of the bank or person charged
with the violation, as well as the history of previous violations.
Hopefully, the utility of such penalties would be primarily in their
deterrent effect, and the actual imposition of fines could be used
sparingly.
INSIDER LOANS
Our experience has indicated the need for more vigorous supervision
by bank boards of directors and bank supervisory agencies of transactions
between an insured nonmember bank and "insiders" of the bank.
Abusive
self-dealing has been a significant contributing factor in more than half
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4-
of all bank failures since 1960, including the failure of 30 nonmember
insured banks.
Losses to the deposit insurance fund as a result of these
failures are likely to exceed $175 million.
A review of existing and past
"problem" bank cases also reveals abusive self-dealing as a significant
source of difficulty.
Even where the immediate result is not the bank's
failure or its designation as a bank requiring close supervision, an insider
transaction that is not effected on an "arm's length" basis may lead to a
diminution of the bank's earnings and an erosion of its capital
thereby
increasing the risk of loss to depositors and minority shareholders and ultimately
to the deposit insurance fund.
Also, insider transactions whose terms and
conditions cannot be justified constitute a diversion to insiders of resources
that properly belong to all shareholders on a pro rata basis, as well as a
misallocation of a community's deposited funds.
For these reasons the FDIC on February 25, 1976 adopted a new regulation
dealing with insider transactions.
The regulation seeks to minimize abusive
self-dealing through the establishment of procedures which insure that bank
boards of directors supervise such transactions effectively and which better
enable FDIC examiners to identify and analyze such transactions.
The board of
directors of each insured nonmember bank will be required, effective May 1, 1976,
to review and approve each insider transaction involving assets or services
having a fair market value greater than $20,000 for a bank having assets under
$100 million, $50,000 for a bank between $100 and $500 million in assets, or
$100,000 for a bank with assets over $500 million.
In addition, certain record
keeping requirements, including a record of dissenting votes cast by members of
bank boards of directors, will be imposed in order to foster effective internal
controls over such transactions by the bank itself and to facilitate examiner
review.
-5-
A more complete explanation of the FDIC's new "insider" regulation will be
found in our February 25, 1976 press release issued in this connection,
which is attached as Appendix B hereto.
In addition to these new regulatory requirements, it is our opinion
that more explicit statutory lending limitations on the amount of a
bank's loans to its insiders would be helpful in preventing banks
from incurring undue risks by lending excessive amounts to insiders
and their related business enterprises.
Such limits are necessitated
by the fact that a bank may be less subject to the restraints imposed
by prudence and sound judgment when making loans to its insiders and
their related interests than it would be in making loans to unrelated
individuals or business enterprises.
Accordingly, we believe further substantive restrictions should be
placed on transactions between banks and insiders.
Specifically, it would
be desirable to amend section 22 of the Federal Reserve Act to impose addi
tional restrictions on loans by a bank to its own officers and directors
and to major stockholders and corporations affiliated with such individuals.
Accordingly, sections 3 and 7 of the bill would provide that the existing
limits under applicable Federal or State law on loans to one borrower would
apply with respect to loans by any member or nonmember insured bank to any
one of its officers and directors and to any other individual holding more
than five percent of its voting securities, including loans to companies
controlled by such officer, director, or five percent shareholder.
These
provisions would require that loans or extensions of credit to any one of
its officers, directors or five percent shareholders and to all companies
controlled by such person be aggregated and that the aggregate of
such credit not exceed applicable Federal or State one-borrower limits.
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6
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ADMINISTRATIVE ENFORCEMENT
While the provisions of the bill discussed above are designed in large
part to prevent problem bank situations from developing, the bill also contains
several provisions intended to assist in dealing with problem bank situations
once they arise.
Presently under § 8(e) of the Federal Deposit Insurance Act
the appropriate Federal bank regulatory agency is authorized to remove a bank
director or officer who has engaged in a violation of a law, rule or regulation,
participated in an unsafe or unsound practice, violated a final cease and
desist order, or breached his fiduciary duty —
but only if such violation
involves personal dishonesty and where substantial financial loss to the
bank or other damage to its depositors can be demonstrated.
Because of the
difficulty of proving circumstances amounting to personal dishonesty, the
present law effectively bars removal of individuals even if they have repeatedly
demonstrated gross negligence in the operation or management of the bank
or willful disregard for its safety and soundness.
While we realize that the congressional objective underlying the
"personal dishonesty" requirement was to protect bank officers and directors
from arbitrary or capricious administrative action, we believe that m
light
of recent experience it is necessary to balance the interests of the individual
bank officer or director against those of the bank's depositors and share
holders, and ultimately against the public interest in maintaining the integrity
of the Federal deposit insurance fund.
To strike this balance, we strongly
recommend enacting the provisions of section 6(d) of the bill, which add to
the standard of personal dishonesty an alternative standard which would
recognize the need to remove those officers and directors whose gross
Negligence in the operation or management of a bank or whose willful disregard
i
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of its safety and soundness threatens the financial safety of the institution.
We believe that the present hearing and judicial review requirements are
sufficient to shield bank officers and directors from arbitrary or capricious
administrative action.
Recent experience also indicates that a bank may be harmed not only by
the misconduct of its own officers and directors but also by the misconduct
of others who are in a position to influence its affairs.
However, it is
often difficult or impossible to reach such persons through removal pro
ceedings or through cease and desist action brought against the bank itself.
Accordingly, we also recommend the amendments contained in section 6(a) and
(c) of the bill, which would amend paragraphs (b) and (c) of section 8 of
the Federal Deposit Insurance Act to provide that the appropriate regulatory
agency may bring cease and desist proceedings against directors, officers,
employees, agents and other persons participating in the conduct of the
affairs of a
bank, as
wellas against the bank itself as permitted
present law.We believe that
under
the ability to reach such officers,
directors and other persons participating in a bank s affairs through
cease and desist orders would result in a greater ability to correct
situations which might otherwise result in serious detriment to the bank.
There are other provisions in the bill which relate to bank holding
companies or to other matters within the special cognizance of the
Comptroller of the Currency or the Federal Reserve.
the bill in
toto, we
of such provisions.
deferto
Also,
While we support
these other agencies for detailed discussions
in response to the request contained in
your
March 15, 1976 letter, there is attached hereto as Appendix C a resume of
administrative enforcement proceedings conducted by the FDIC during the
past five years.
Finally, we would recommend that the Committee also
i
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act favorably with respect to a related bill (S. 2233) which contains
various noncontroversial, "housekeeping" amendments to the Federal
Deposit Insurance Act.
Attachments
APPENDIX A
FD1C
1 NEWS RELEASE
L-----------
P fO f t A l 00*0*11 IM8U0A OC* C 0 0 * 0 0 â l M M
PR-57-75 (7-21-75)
FOR RELEASE UPON DELIVERY
Legislative proposals under FLIC consideration
as a result of the failure of United States
National Bank and related enforcement problems
Presented to the
Subcommittee on Financial Institutions,
Supervision, Regulation and Insurance
Committee on Banking, Currency and Housing
House of Representatives
by
Frank Wille, Chairman
Federal Deposit Insurance Corporation
July 21, 1975
ION. 550 Seventeenth St. N.W., Washington, D C. 20429
202 389-4221
This statement outlines a number of legislative proposals the FDIC is
considering which might curb some of the abuses that led to the downfall
of United States National Bank and have or could lead to the failure of
similarly operated banks.
I.
AFFILIATES:
A broader definition of affiliate for lending purposes
USNB, which was in fact controlled by C. Arnholt Smith, extended massive
credit to other enterprises controlled by Smith, yet these credit extensions
apparently did not violate the provisions of § 23A of the Federal Reserve
Act limiting loans to ’’affiliates” of member banks (made applicable to non
member banks by § l8(j) of the Federal Deposit Insurance Act).
incorporates the definition of "affiliate
Act of 1933 (12 U.S.C.
§ 221a).
Section 23A
found in Section 2a of the Banking
As presently written, Section 2a limits the
term "affiliate” to those entities which are controlled by shareholders who
control more than 50 percent of the shares of a b a n k ’s voting stock, and
Smith himself did not directly control a majority of the voting shares of
USNB.
We believe that this definition should be changed to encompass share
holders who have actual control over the management or policies of a bank
even though they own less than a majority of its voting shares.
1/
This change was previously suggested by the Comptroller of the Currency
in his prepared statement before this Subcommittee on December 11, 197^-•
1/ The term "affiliate”, as defined in Section 2a, is used in other sections
of the Federal Reserve Act as well as Section 23A. Each of those sections
will be separately examined to determine whether the recommended broadening
of the definition of "affiliate" is similarly desirable.
2
II.
CONGLOMERATES:
Tighter limits on lending to entities under common control
Although there axe federal and state laws which limit loans to a single
borrower, many corporate borrowers have been able to avoid such limits
through the simple expedient of having each of their subsidiaries borrow
separately from the same bank, with the parent company refraining from any
direct borrowing from that bank.
The danger is that laws or regulations
which treat corporate subsidiaries as separate entities for bank lending
limit purposes will result* in aggregate excessive loans to ostensibly separate
entities which axe in reality part of a single enterprise.
When that enter
prise fails, normally the loans to all of the entities go ’’sour".
For example, USNB extended credit to the Westgate-California conglomerate
in amounts fax in excess of the legal limit imposed on loans by a national
bank to any one borrower (12 U.S.C. § 8U).
It was able to do so because the
parent company (now in Chapter 10 proceedings) didn’t borrow directly.
In
construing § 8U, the Comptroller of the Currency has ruled that obligations
of subsidiary corporations axe generally not considered obligations of the
parent if the parent corporation is not itself borrowing from the same bank
(12 C.F.R.
§ 7.1310), and this construction in the view of most lawyers is
supported by the language of the statute.
To counter this problem, the FDIC favors changes in both federal and state
lending limits, where necessary, which would allow the supervisory authori
ties to treat loans to entities under common control as loans to a single
borrower.
- 3 -
HI.
INSIDERS:
Tighter limits on lending to insiders and their related
business interests
Lending limits should prevent banks from incurring undue risks by lending
excessive amounts to insiders and their related business enterprises.
A
bank may be less subject to the restraints imposed by prudence and sound
judgment when making loans to these insiders and their related interests
than it would be in making'loans to unrelated individuals or business
enterprises.
In line with Governor Holland's testimony last Wednesday, we recommend that
§ 22 of the Federal Reserve Act (12 U.S.C. § 375a) be amended so as to cover
directors and controlling shareholders of a member bank in addition to its
executive officers, and to business enterprises which such directors, con
trolling shareholders and executive officers control.
We also agree that
loans to these individuals should be aggregated with loans to companies
controlled by them for the purpose of applying state and federal lending
limits.
Since many states impose no legal restraints on loans to a bank s
own executive officers, directors or controlling shareholders, we recommend
that Section 22 of the Federal Reserve Act be extended to encompass those
State-chartered banks which are insured by the FDIC but do not belong to the
Federal Reserve System.
Parenthetically, I might add that the FDIC is considering regulations which
would impose on banks tighter internal controls and recordkeeping require
ments for transactions with insiders.
We plan to publish these proposed
regulations for public comment within the next few weeks.
- k -
IV.
FINES:
.Administrative fines for major banking law violations
A special problem has to do with the absence of penalties for violations of
major federal banking laws, such as §§ 22 and 23A of the Federal Reserve Act.
I previously recommended that § 22 be extended to cover insured nonmember as
well as member banks.-
Section 23A already applies to insured nonmember banks
by virtue of § l8(j) of the Federal Deposit Insurance Act.
Neither section
includes any provision for a fine in the event of its violation, yet both
sections are important in preventing the kinds of abuses often found in
problem banks.
We recommend that Congress authorize the appropriate bank regulatory agency
to assess a fine against any bank or individual willfully violating § 22 or
§ 23A, or willfully refusing to obey any lawful regulation issued pursuant
thereto.
Such fine would be in the nature of a civil rather than a criminal
penalty and would vary in amount, within the maximum set by law, at the
discretion of the agency.
We recognize the severity of this remedy but feel that it often constitutes
the only effective method of deterring harmful violations.
Termination of
a bank's insurance has long been recognized as too severe to be used in any
but extreme situations.
Cease and desist proceedings are useful but the
threat of a cease and desist order, standing alone, has not always proved
to be a sufficient deterrent to those who would willfully violate laws or
regulations.
Hopefully, the threat of a fine would deter conduct that could
cause irreparable injury to a bank.
We also recommend the imposition of a fine for the willfil violation of any
effective and outstanding cease and desist order issued by an agency under
-
§ 8(b) or § 8(c). (12 U.S.C.
5
-
§§ l8l8(b) and
(c)) of the Federal Deposit
Insurance Act where the order has become final.
In this case, the fine
would be imposed for each day that the offending bank or individual will
fully refuses to obey the order.
The imposition of a fine for violating
a cease and desist order which has become final would serve to emphasize
the gravity of such an order.
Under § 8(k) (12 U.S.C.
§ l8l8(k)), a cease
and desist order does not become final unless entered into by consent or
until the time has run for filing a petition for review with the appropriate
U. S. court of appeals and no petition has been filed or perfected, or the
petition so filed is not subject to further review by the Supreme Court.
In either event, the party must have exhausted the administrative and judicial
remedies afforded him under the Act.
If the party then continues to disobey
an order, the appropriate agency can apply to the proper U. S. district court
to secure its enforcement.
However, the threat of court enforcement and
possible contempt proceedings should not be the only deterrent at this point.
The party has been given every opportunity to have his day in court.
He
should not be allowed to further impede the effect of the order simply to
secure another delay and should be subject to a substantial monetary penalty
for each day that he does so.
V.
REMOVAL:
Tndividuals who willfully disregard the safety and soundness
of an institution
As you know, § 8(e) (12 U.S.C.
§ 1818(e)) of the Federal Deposit Insurance
Act authorizes the removal of a bank director or officer who has engaged in
a violation of a law, rule or regulation, participated in an unsafe or unsound
practice, violated a final cease and desist order, or breached his fiduciary
duty; but only where his actions also involve personal dishonesty and are
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6
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seen as causing substantial financial loss to the bank or damage to its
depositors.
This effectively bars the removal of an officer or director
who has repeatedly demonstrated gross negligence or willful disregard for
the safety and soundness of his bank, thereby causing it substantial financial
injury, but who has not been shown to have engaged in any act amounting to
personal dishonesty.
Although we recognize the effort on the part of Congress to shield those who
are innocent of any personal wrongdoing from arbitrary or capricious adminis
trative action, we feel that some effort should be made to balance the intere^to
of the individual bank officer or director against those of its depositors and
shareholders, and ultimately the Federal deposit insurance fund.
This can be
done by adding to the Act as an alternative to the standard of personal
dishonesty, a new standard which would recognize the need to remove those
whose reckless conduct threatens the financial safety of their insitutions.
Since removal under § 8(e) is an administrative remedy which may not be put
into effect until a hearing has been afforded the party in question, providing
him with an opportunity to put on his defense, he is adequately protected
against arbitrary and capricious administrative action.
In addition, he has
the right to petition a court of appeals to modify or set aside the removal
order.
VI.
CEASE AND DESIST:
Extension of order to certain persons
Our experience suggests that a bank may be harmed not only by the misconduct
of its own management but also by the misconduct of others who are in a
position to influence its affairs.
However, it is often difficult to reach
such persons through a cease and desist proceeding brought against the bank
itself.
- 7 -
Section 8(b) (12 U.S.C. § 1818(b)) of the Federal Deposit Insurance Act
empowers the appropriate federal banking agency to bring a cease and desist
proceeding against a bank that is engaged in a violation of a law, rule or
regulation, or an unsafe or unsound practice.
We recommend that § 8(b)
be amended to expressly include persons such as directors, officers, con
trolling shareholders and others participating in the conduct of the affairs
of the bank.
This would enable the appropriate agency to control the
participation in the affairs of a bank of those persons who have either
violated a law, rule or regulation, or engaged in an unsafe or unsound
practice, or participated with others in such violations or practices.
APPENDIX B
f O
1
m
NEWS RELEASE
W H t l ( M W MOMANO C O M IM M
FOR IMMEDIATE RELEASE
PR-13-76 (2-25-76)
FDIC ADOPTS FINAL REGULATION ON INSIDER TRANSACTIONS
OF NONMEMBER COMMERCIAL BANKS________ _
Chairman Frank Wille announced today that the Board of Directors of the Federal
Deposit Insurance Corporation has adopted in final form a regulation aimed at
curbing abuses which may occur in the context of transactions between an insured
State nonmember commercial bank and "insiders" of the bank. The regulation becomes
effective May 1, 1976, and is similar to but not identical with the proposed regu
lation on the same subject issued by the FDIC for comment on September 4, 1975.
According to Chairman Wille, the experience of the Corporation has indicated the
need for more vigorous supervision of such transactions by bank boards of directors
and bank supervisory agencies. Abusive self-dealing has been a significant contrib
uting factor in more than half of all bank failures since 1960, including the failure
of 30 nonmember insured commercial banks. Losses to the deposit insurance fund as a
result of these failures are likely to exceed $175 million. A review of existing and
past "problem" bank cases also reveals abusive self-dealing as a significant source
of difficulty.
Even where the immediate result is not the bank's failure or its
designation as a bank requiring close supervision, an insider transaction that is
not effected
on an "arm's length" basis may lead to a diminution of the bank's
earnings and
an erosion of its capital— thereby increasing the riskof loss to depos
itors and minority shareholders and ultimately to the deposit insurance fund. Also,
insider transactions whose terms and conditions cannot be justified constitute a
diversion to insiders of resources that properly belong to all shareholders on a pro
rata basis, as well as a misallocation of a community's deposited funds.
The regulation seeks to minimize abusive self-dealing through the establishment of
procedures which insure that bank boards of directors supervise such transactions
effectively and which better enable Corporation examiners to identify and analyze
such transactions.
The board of directors of each insured nonraember commercial bank
will be required to review and approve each Insider transaction involving assets or
services having a fair market value greater than a specified amount which varies with
the size of
the bank.
In addition, certainrecord keeping requirements, including a
record of dissenting votes cast by members of bank boards of directors, will be imposed
in order to foster effective internal controls over such transactions by the bank itself
and to facilitate examiner review.
W
The term "insider" is defined in the regulation as any director; any officer or
employee who participates or has authority to participate in major policy-making
functions of a bank; and any other person who has direct or indirect control over the
voting rights of more than ten percent of the shares of any class of voting stock of
a bank, or who otherwise controls the management or policies of a bank. An insider
transaction" would include, with limited exceptions, any business transaction between
an insured nonmember bank or a majority-owned subsidiary of such a bank and an insider
or certain persons related to such an insider.
Included in the scope of this coverage
are transactions between a State nonmember bank and a holding company parent or other
FEDERAL DEPOSIT INSURANCE CORPORATION, 550
Seventeenth St. N.W., Washington, 0. C. 20425
202 389 4221
2
entities within a holding company system. An insider transaction would also
encompass transactions between the bank and a noninsider where the transaction
ultimately inures to the tangible economic benefit of an insider or persons related
to an insider.
The regulation makes it clear that formal compliance with the board of directors
review and approval requirements it imposes neither relieves the bank of its duty to
conduct its operations in a safe and sound manner nor prevents thé Corporation from
taking whatever supervisory action it deems necessary and appropriate with respect to
any insider transaction or group of insider transactions.
Such supervisory action
could include cease and desist proceedings, removal proceedings, and the termination
of deposit insurance under section 8 of the Federal Deposit Insurance Act. Finally,
the regulation sets forth factors which will be considered by the Corporation’s
Board of Directors in determining whether such insider transaction or transactions
indicate the presence of unsafe or unsound banking practices. These factors include,
whether, because of preferential terms and conditions, such transactions are likely
to result in significant loan losses, excessive costs, or other significant economic
detriment to the bank which would not occur in a comparable arm's length transaction
with a person of comparable creditworthiness or otherwise similarly situated; whether
transactions with an insider and all persons related to that insider are excessive in
amount, either in relation to the bank's capital and reserves or in relation to the
total of all transactions of the same type; or whether from the nature and extent o
the bank's insider transactions it appears that certain insiders are abusing their
positions with the bank.
As adopted, the regulation would not apply to the 329 FDIC-insured mutual sayings
banks. The Corporation will at an early date publish for comment its intention to
!
amend the newly adopted regulation so that it will apply to these mutual savings banks.
Chairman Wille emphasized that although the Corporation has determined that insider
transactions require special supervision by bank boards of directors and close scrutiy
by the Corporation’s examiners, this determination does not mean that all transactions
with insiders or their interests are detrimental to the bank in question or that such
transactions should be automatically rejected. Accordingly, the Corporation has neithe
prohibited nor significantly restricted a bank’s ability to enter into such transactions
Similarly, an effort has been made to avoid the imposition of costly and unduly burden
some record keeping or reporting requirements.
1“ sh° rt!, accor‘lin8
*
’
the regulation represents an attempt on the part of the Corporation to deal with a
problem ofSerious concern in a manner which is both effective and equitab e, taking
into account the diverse interests of the bank, its customers and shareholders, and
the FDIC itself.
E // // 1 I
TITLE 12
CHAPTER III —
BANKS AND BANKING
FEDERAL DEPOSIT INSURANCE CORPORATION
SUBCHAPTER B -- REGULATIONS AND STATEMENTS
OF GENERAL POLICY
PART 337 —
UNSAFE AND UNSOUND BANKING PRACTICES
Approval and Record Keeping Requirements
Pertaining to Insider Transactions
l. On September 3, 1975 the Federal Deposit Insurance Corporation
(the "FD1C") published for comment a notice of proposed rulemaking
pursuant to the authority in sections 7(a), 8(a), 8(b), 8(e), 9 Tenth,
10(b) and 10(c) of the Federal Deposit Insurance Act [12 U.S.C, sections
1817(a), 1818(a), 1818(b), 1818(e), 1819 Tenth, 1820(b) and 1820(c)].
[40 Fed. Reg. 40548.] The notice indicated that the Board of Directors
(the”T7BoardT7) of the FDIC was considering addition of a new section 337.3
to Part 337 of Title 12 of the Code of Federal Regulations for the
purpose of curbing abuses which arise out of the dealings of insiders
with insured nonmember banks.
The period for public comment ended
October 31, 1975.
After careful review and consideration of the views
and arguments of those who commented on the proposed regulation, the Board
has determined that the proposed section 337.3 should be adopted with
certain modifications.
Accordingly, the regulation was adopted as
modified by resolution of the Board on February 25, 1976.
Its require
ments will become effective on May 1, 1976.
This action is based on the experience of the Corporation which
indicates that many banks have suffered loan losses, loss of revenue,
excessive costs and other substantial economic detriment as a result
of ill-considered transactions with insiders.
The need for more
rigorous supervision of such transactions by boards of directors and
bank supervisory agencies is indicated by the fact that abusive self
dealing has been the primary cause or a significant contributing
cause in more than half of all bank failures since 1960, including
the failure of 30 nonmember insured banks.
The most dramatic
example of the harm which can result from abusive self-dealing is the
1973 failure of the United States National Bank, San Diego, California,
for which the Corporation has had to establish a reserve of $150 million
for loss to the deposit insurance fund.
Review of existing and past
2
"problem" bank cases also reveals insider overreaching as a significant
source of serious difficulty.
Moreover, an insider transaction that
is not effected on an "arm's length" basis will lead to a diminution
of earnings and an erosion of capital, even where the immediate result
is not the bank's failure or its designation as a "problem" institution.
It follows, therefore, that insider transactions whose terms and conditi >rv
cannot be justified when viewed in light of all the circumstances surround 1
the transaction, increase the risk of loss to depositors and ultimately
to the deposit insurance fund. In addition, insider transactions whose ft rand conditions cannot be justified constitute a diversion to insiders
of resources that properly belong to all shareholders on a pro rata
basis, as well as a misailocation of a community's deposited funds.
The regulation seeks to minimize the risk of such abuse in insured
nonmember banks by requiring meaningful board of director review of
significant insider transactions and by requiring the maintenance of
certain records designed to facilitate internal control and examiner
analysis of these transactions and to document the fairness of these
transactions to the bank.
In order to provide guidance to bank boards,
the regulation lists some of the factors which the Corporation would
consider in determining whether an insider transaction or group of
insider transactions indicates the presence of an "unsafe or unsound"
banking practice and what kind of corrective supervisory action is
warranted.
Although the Corporation has determined that insider transactions
require special supervision by bank boards of directors and close
scrutiny by the Corporation's examiners, this determination does not
mean that all transactions with insiders or their interests are detrimental
to the bank in question, or that they should be discouraged.
Accordingly,
the Corporation has chosen not to prohibit or restrict such transactions II
Similarly, the Corporation has chosen not to impose costly and burdensome
record keeping or reporting requirements.
Rather, the focus of the
1/ Several comments reflected the misconception that the regulation seeks
to prohibit or discourage insider transactions. The Corporation recognizes
that in many instances such transactions are not only appropriate but
highlv desirable and that in certain smaller banking markets they may
be inevitable and essential to the provision of adeauate banking services.
It must be emphasized, therefore, that the regulation is aimed at insuring
that insider transactions are effected on terms which are fair to the bank
and its shareholders and do not involve overreaching and abuse by insiders.
3
proposed regulation is the establishment of internal bank procedur
which will minimize the potential for abuse that is inherent in a
conflict of interest situation.
In short, the Corporation has sought
to strengthen existing institutional mechanisms— the bank s board o
directors and the examination process— to deal with the problem
insider abuse.
Scope of the Regulation
The regulation applies to all insured State nonmember commercial
banks and to any majority-owned subsidiary of such a bank.
It defines
an "insider" as any director; any officer or employee who participates or
has authority to participate in major policy-making functions or any ot
person who has direct or indirect control over the voting rights of
more than ten percent of the shares of any class of voting stock of
a bank or otherwise controls the management or policies of the bank 2/.
An insider tranaction is considered to be any business transaction
or series of related business transactions 3/ between an insured Sta e
nonmember bank or a majority-owned subsidiary of
insider, certain close relatives of an insider, or business interests
2/ The phrase "or otherwise controls the management or policies of a bank
was added to the definition of "insider" because the experience of the
Corporation indicates that significant influence and even effective
control over the affairs of a bank can be exerted by one J*» “
neither an employee, officer, director, nor Si*«ii.fie«5,
IL'S
For example, a management contract may give one not | t i ^ f o n
with a bank substantial influence over the affairs of the institution.
3/ In an explanatory footnote to subsection (a)(6), the regulation states:
"The phrase 'series of related business transactions' includes
transactions which are in substance part of an
arrangement or relationship such as borrowings on
law firm billings, or recurring transactions of a similar nature
within a holding company system."
4
of an ins ider 4/ . Any transact
where the transa c t ion is made
an ins ide r or wh ere the transa
econom ic benefit of an ins ider
al so cons idered to be an insid
ank and a non -insider
of the per son becom i.ng
inures to the tang ib1e
ted to an ins ider, is
.on.
4/ The regulation states that the definition of insider transaction
includes "any business transaction or series of related business
transactions" between a bank and an "insider" or a "person related to
an insider".
The term "insider" includes "any other person who has
direct or indirect control over the voting rights of ten percent of the
shares of any class of voting stock of a bank or otherwise controls
the management or policies of a bank", and the term "person related to
an insider" includes, in addition to certain close relatives, "any
person controlling, controlled by or under common control with an insider"
It should be noted that this definitional framework results in application
of the regulation to many intra-holding company transactions.
A number of comments objected to the regulation on the ground that,
in the holding company context, it would cover a great many routine
transactions, rendering compliance impractical and burdensome.
The
Corporation has sought to lessen this burden through the addition of the
provision in section (b) which allows the bank to approve "a series of
related transactions involving the same insider" as if they were a single
transaction.
In the holding company context this would allow the bank's
board to approve and review similar transactions of a recurring nature,
with the parent or another affiliate, as a group rather than singly.
Secondly, in the event that the regulation does have unduly
burdensome effects that the Corporation has not anticipated, the bank
may resort to the waiver provision contained in Part 337 of FDIC
regulations, which states:
"An insured State nonmember bank has the right
to petition the Board of Directors of the
r of th is Par t or any
spect to any part icular
t sim il ar transae tions .
at the disc re t ion of the
good cause . All such
ed wi th the Office o f
, Fed er al De posit
350 - 17th Street, N.W. ,
Washington ,\D.C.
20429
5
Board of Directors Review and Approval
Under the regulation, the board of directors of each insured
State nonmember bank will be required to review and approve each insider
transaction involving assets or services having a fair market value
greater than a specified amount which varies with the size of the bank 5/
Although not specifically required by the regulation, prior review
and approval is desirable and should occur except under circumstances
which render such review and approval clearly impractical.
Where prior
review and approval by the board of directors is clearly impractical,
subsequent action should occur as soon as possible.
For the purpose of applying the review and approval requirement
schedule, the regulation provides that any loan or other extension of
credit involving an insider is to be aggregated with the outstanding
balances of all other loans or extensions of credit involving that
insider.
The regulation explains that "a loan or extension of credit
involves a specific insider when the loan is made to that insider, to
a person related to that insider, or to any other person where the loan
or extension of credit inures to the tangible economic benefit of that
insider or a person related to that insider". When the amount of such
loans or other extensions of credit reaches the prescribed minimum
amount in the schedule, board of directors review and approval will
be required.
The inclusion of a schedule of minimum dollar amounts that will
trigger the approval requirement is based upon a determination that
effective board of directors review is possible only if the number of
transactions subject to review is limited.
Accordingly, the Corporation
will require approval only for those insider transactions which,
alone or taken in the aggregate, are deemed significant relative to
size of the bank.
However, the inclusion of such a schedule is not
intended to suggest that insider overreaching involving a transaction
smaller than the minimum amount will not be the subject of examiner
comment or corrective action on the part of the Corporation.
The regulation, as adopted, contains the proviso that a bank s
board of directors need not review and approve a given insider trans
action that would otherwise require approval under the schedule if the
5/ Certain transactions are expressly excluded from the coverage of the
regulation.
These include: deposit account activities (other than
s
the payment by the bank of interest on time deposits^wh ich are in amount
of $100,000 or more); safekeeping transactions; credit card transactions
and activities undertaken in the capacity of securities transfer agent
or municipal securities dealer.
6
transaction is a part of a series of re 1ated bus ine ss transac t ion s
involving the same insider which the boa rd ha s reviewe d and appro ved > an
if the board has specified the terms and cond it ions under which suc h
transactions may take place. The inc lus ion of this proV iso, which
was not in the regulation as origina lly propo sed , refl ects the re COi n it i
that board approval of frequently re curr ing transac t ion s of a sim i1ar
nature would in many instances prove bur densome and CO stly, espec ia 1lv
in the holding company context.
In the judgm ent of the Corporat ion 5
the benefits of board of directors a pproval can be rea 1ized witho ut Sllch
costs, by the board's consideration of the ser ie s o f transact ions and
by its establishment of appropriate guid el ine s with in which the term s
and conditions of the individual tra nsac t ions must be effee ted.
Record Keeping
In order to facilitate examiner review of insider transactions
and to foster effective internal control over such transactions by
bank boards, the regulation imposes three record keeping requirements.
First, the minutes of the meeting where approval of an insider transaction
or group of insider transactions is given would be required to reflect
the nature of the transaction, the parties to the transaction, the
fact that such review was undertaken and approval given, the names
of individual directors who voted to approve or disapprove the transaction,
and, in the case of negative votes, an optional statement by each dissenting
director of his or her reasons for voting to disapprove the proposed
insider transaction.
Second, the regulation requires each bank to
maintain a record of insider transactions requiring review and approval
under subsection (b) in a manner and form that will enable examiner
personnel to identify readily such insider transactions.
And, third,
the regulation requires that files pertaining to such insider transactions
be accessible to examiners and contain all documents and other material
relied upon by the board in approving each transaction, including the
name of the insider, the insider's position or relationship that causes
such person to be considered an insider, the date on which the transaction
was approved by the board, the type of insider transaction and the
relevant terms of the transaction, any other pertinent facts which
serve to explain or support the basis for the board's decision, and
any statements filed by directors who voted not to approve the transaction
setting forth their reasons for such a vote.
In this regard, it should
be noted that the regulation does not require the maintenance of a
separate set of files for insider transactions.
The thrust of these
record keeping requirements is to insure that insider transactions
are clearly identifiable, that files pertaining to such transactions
are readily accessible to examiner personnel (through indexing or some
other system), and that the files contain appropriate documentation.
7
Knowledge of Insider Transactions
In order to facilitate compliance with its approval and review
requirements, the regulation requires an insider paving knowledge
of a proposed insider transaction with which he or she is involved to
give timely notice of such transaction to the bank's board of directors.
Also, when the bank itself becomes aware of the existence of a completen
insider transaction which has not been reviewed and approved in compita?
with the regulation, the bank will be required to report such transaction
promptly in writing to the FDIC Regional Director with jurisdiction ovei
the bank.
Supervisory Guidelines
Finally, the regulation makes it clear that formal compliance with
its review and approval requirements neither relieves the bank of it?
obligation to conduct its operations in a safe and sound manner nor
prevents the Corporation from taking whatever supervisory action it
deems necessary and appropriate with respect to any insider transaction
or group of insider transactions, including the institution of formal
proceedings under section 8 of the Federal Deposit Insurance Act. In
addition, the regulation sets forth the factors which will be considered
by the Corporation's Board of Directors in determining whether such
transaction or transactions indicate the presence of unsafe or unsound
banking practices. These factors include: whether, because of preferential
terms and conditions, such insider transactions are likely to result
in significant loan losses, excessive costs, or other significant
economic detriment which would not occur in a comparable arm's length
transaction with a person of comparable creditworthiness or otherwise
similarly situated; whether transactions with an insider and all persons
related to that insider are excessive in amount, either in relation to
the bank's capital and reserves or in relation to the total of all
transactions of the same type; or whether from the nature and extent
of the bank's insider transactions it appears that certain insiders
are abusing their positions with the bank.
2.
The new §337.3 reads as follows:
8
Section 337.3
Insider Transactions
(a)
Definitions.
(1) Bank.
The term "bank" means an insured
State nonmember bank, other than a mutual savings
bank as defined in section 3(f) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(f)), and any
majority-owned subsidiary of such bank.
(2) Person.
The term "person" means a
corporation, partnership, association, or other
business entity; any trust; or any natural person.
(3) Control.
The term "control" (including
the terms '‘controlling," "controlled by," and "under
common control with") means the possession, directly
or indirectly, of the power to direct or cause the
direction of management and policies of a bank,
whether through the ownership of voting securities,
by contract, or otherwise.
(4)
Insider.
The term "insider" means any
officer or employee who participates or has authority
to participate in major policy-making functions of
a bank, any director of a bank, or any other person
who has direct or indirect control over the voting
rights of ten percent of the shares of any class
of voting stock of a bank or otherwise controls the
management or policies of a bank.
(5)
Person related to an insider.
The term
"person related to an insider" means any person
controlling, controlled by or under common control
with an insider, and also, in the case of a natural
person, means:
a.
an insider's spouse >
b.
an insider'8 parent or stepparent , or
child or stepchild; or
c.
any other relative who lives in an
insider's home.
9
(6) Insider transaction.
The term "insider
transaction*' means any business transaction or
series of related business transactions* between
a bank and:
a.
an insider of the bank;
b.
a person related to an insider of
the bank;
c.
any other person where the transaction
is made in contemplation of such
person becoming an insider of the
bank; or
.
d.
any other person where the transaction
inures to the tangible economic
benefit of an insider or a person
related to an insider.
(7) Business transaction.
The term "business
transactionT1 includes, but is not limited to, the
following types of transactions:
a.
loans or other extensions of credit;
b.
purchases of assets or services from
the bank;
c.
sales of assets or services to the bank;
d.
use of the bank's facilities, its
real or personal property, or its
personnel ;
e.
leases of property to or from the bank;
f.
payment by the bank of commissions
and fees, including brokerage commis
sions and management, consultant, architectural
and legal fees; and
* The phrase "series of related business transactions" includes
transactions which are in substance part of an integrated business
arrangement or relationship such as borrowings on a line of credit,
law firm billings, or recurring transactions of a similar nature
within a holding company system.
.1
10
g.
payment by the bank of interest on time
deposits which are in amounts of Ç100,000
or more.
For the purpose of this regulation, the term does
not include deposit account activities other than
those specified above in subsection (a)(7)(g), safekeeping
transactions, credit card transactions, trust activities,
and activities undertaken in the capacity of securities
transfer agent or municipal securities dealer.
(b )
Approval and Disclosure of Insider Transaction s .
An insider transaction, either alone or when
aggregated in accordance with subsection (c), involving,
assets or services having a fair market value
amounting to more than:
(1)
$20,000 if the bank has not more than
$100,000,000 in total assets;
(2)
$50,000 if the bank has more than $ 1 0 0 , 0 0 0 , 0 0 0
and not more than $500,000,000 in total
assets; or
(3)
$100,000 if the bank has more than $500,000,000
in total assets
shall be specifically reviewed and approved by the bank's
board of directors, provided, however, that, when an
insider transaction is part of a series of related
business transactions involving the same insider,
approval of each separate transaction is not required
so long as the bank's board of directors has reviewed
and approved the entire series of related transactions
and the terms and conditions under which such
transactions may take place.*
★Although not specifically required by the proposed regulation,
prior review and approval is desirable and should occur except
under circumstances in which such review and approval is clearly
impractical.
Where prior review and approval by the board of
directors is clearly impractical, subsequent action should occur
as soon as possible.
11
The minutes of the meeting at which approval is
given shall indicate the nature of the tran sact i.on
or transactions, the parties to the transaction or
transactions, that such review was undertaken and
approval given, and the names of individual directors
who voted to approve or disapprove the transaction
or transactions. In the case of negative votes,
a brief statement of each dissenting director's
reason for voting to disapprove the proposed insider
transaction or transactions shall be included in
the minutes if its inclusion is requested by the
dissenting director.
(c) Aggregation of Loans or Other Extensions of
Credit"“Which Are Insider TransactionsT"
Any loan or extension of credit involving
an insider shall be aggregated with the outstanding
balances of all other loans or extensions of credit
involving that insider.
For purposes of this
regulation, a loan or extension of credit involves
a specific insider when the loan or extension of
credit is made to that insider, to a person related
to that insider, or to any other person where the
loan or extension of credit inures to the tangible
economic benefit of that insider or a person
related to that insider.
(d)
Bank Files Maintained for Insider Transactions.
Each bank shall maintain a record of insider
transactions requiring review and approval under
subsection (b) in a manner and form that will
enable examiner personnel to identify such insider
transactions.
Files pertaining to such insider
transactions shall be readily accessible to examiners
and shall contain all documents and other material
relied upon by the board in approving e a c h transaction,
including the name of the insider, the insider's
position or relationship that causes such person
to be considered an insider, the date on which the
transaction was approved by the board, the type of
insider transaction and the relevant terms of the
transaction, any other pertinent facts which serve
to explain or support the basis for the board s
decision, and any statements submitted for the
12
minutes or the file by directors who voted not to
approve the transaction setting forth their reasons
for such vote.
(e)
Discovery of Insider Relationship.
When a bank becomes aware of the existence pi
an insider relationship after entering into a
transaction for which approval would have been
required under subsection (b), the bank shall
promptly report such transaction in writing to
thq Regional Director of the Corporation in charge
of the Region in which the bank is headquartered.
(f)
Knowledge of Proposed Insider Transaction.
Any insider, having knowledge of an insider
transaction between the bank and:
(1)
that insider;
(2)
a person related to that insider; or
(3)
any other person where the transaction
inures to the tangible economic benefit
of that insider or person related to that
insider
shall give timely notice of such transaction to
the bank's board of directors.
(g) Supervisory Action in Regard to Certain Insider
Transactions.
Notwithstanding compliance with the review and
approval requirements of subsection (b), the Corpora
tion will take appropriate supervisory action against
the bank, its officers or its directors when the
Corporation determines that an insider transaction,
alone or when aggregated with other insider trans
actions, is indicative of unsafe or unsound practices.
Such supervisory action may involve institution
of formal proceedings under section 8 of the Federal
Deposit Insurance Act.
Among the factors which
the Corporation will consider in determining the
presence of unsafe or unsound banking practices
involving insider transactions are:
13
(1) whether, because of preferential terms
and conditions, such insider transactions are
likely to result in significant loan losses,
excessive costs, or other significant economic
detriment which would not occur in a compapable
arm's length transaction with a person of
Comparable creditworthiness or otherwise
similarly situated;
(2) whether transactions with an insider
and all persons related to that insider are
excessive in amount, either in relation to
the bank's capital and reserves or in relation
to the total of all transactions of the same
type ; or
(3) whether, from the nature and extent of
tjhe bank's insider transactions, it appears
that certain insiders are abusing their
positions with the bank.
3*
This §337.3 shall become effective on May 1, 1976.
By Order of the Board of Directors, February 25, 1976.
FEDERAL DEPOSIT INSURANCE CORPORATION
/
Executive Secretary
APPENDIX C-l
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
Attached is a case-by-case summary of 39 Cease and Desist actions issued
by the Corporation since January 1971.
It should be noted that several
such actions are now in various stages of processing.
In addition to the listing, it should also be noted a number of other
Cease and Desist actions have been authorized by the Corporation's Board
of Directors which were never stipulated to by banks or adopted in final
form by our Board because of favorable interim affirmative actions on
the part of either the banks or management-shareholders.
In effect, the
threat of a Cease and Desist action has caused many favorable affirmative
action programs on the part of banks which negated the need for finalizing
the authorized Cease and Desist actions.
Also attached is a summary of each of the three formal written agreements
between banks and the Corporation which were ratified by our Board of
Directors.
In the case of formal written agreements, noncompliance thereof
can be enforced by a subsequent Cease and Desist action.
Section 8(m) of the Federal Deposit Insurance Act provides the State
supervisory authorities with the opportunity to initiate independent corrective
action after the Corporation has served notice of intent to take formal action.
While in most cases the State supervisory authorities choose to join the
Corporation in any such action, some State banking laws do provide for in
dependent cease and desist actions which have been utilized in a number of
instances —
either prior to notice of intent on the part of the Corporation
or subsequent thereto.
A compilation of these State supervisory authority cease and desist actions
is not maintained by the FDIC, but the corrective orders are analyzed and
checked for compliance on a case-by-case basis at each examination of the
involved banks.
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
Summary
Bank No.
1
Deposits— $64,556,000
Cease and Desist order entered on 6-17-71. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
reduction in volume of municipal bonds, other assets realignment to improve
liquidity, curtailment of direct and indirect loans to insiders, acceptable
management, and injection of new capital funds.
Order terminated 12-10-71 following the sale of controlling interest by the
unsatisfactory management, sale of new capital funds, substantial compliance
with the Cease and Desist order, and the designation of new management.
2
Deposits— $46,107,000
Cease and Desist order entered on 7-12-71. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect
to elimination of transactions with self-serving ownership.
Order terminated 1—12—73 following change of stock control and a revamping of
the board of directors.
Deposits— $7,328,000
Cease and Desist order entered on 7-12-71. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
elimination of transactions with self-serving ownership.
Order terminated 5—1—72 following the sale of controlling interest by the un
satisfactory management and restoration of the capital accounts to an accepta
ble level.
Deposits— $1,025,000
Cease and Desist order entered on 7-12-71. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
elimination of transactions with self-serving ownership.
Order terminated 4-17-72 following the sale of controlling interest by the un
satisfactory management and restoration of the capital accounts to an accepta
ble level.
2
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
Bank No.
5
^
Summary
Deposits— $20,238,000
Cease and Desist order entered on 7-12-71. Bank ordered to cease and desist
unsafe and unsound practices and take affirmative action with respect to
elimination of transactions with self-serving ownership.
Order terminated 12-10-71 following the sale of controlling interest by the
unsatisfactory management and restoration of the capital to an acceptable level
6
Deposits— $5,096,000
Cease and Desist order entered on 7-12-71. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
correction of violations of laws and regulations, correction of operating
deficits, and restoration of the capital accounts to an acceptable level.
Order terminated 7-8-74 following substantial compliance with corrective or
ders, favorable trends, improved prospects and augmented capital.
7
Deposits— $4,649,000
Cease and Desist order entered on 11-19-71. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
elimination of transactions with a self-serving ownership and management.
Order terminated 5-2-74 following change of control, management and asset im
provement .
8
Deposits— $6,513,000
Cease and Desist order entered on 1-6-72. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
providing its shareholders with adequate information pertaining to the condi
tions and activities of the bank in full compliance with various requirements
of Sections 12, 13 and 14 of the Securities Exchange Act of 1934 and Section
335 of the Federal Deposit Insurance Corporation's Rules and Regulations.
Substantial compliance with the order was accomplished in 1972 although the
order remains outstanding.
#
3
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
Summary
bank No.
9
Deposits— $5,128,000
Cease and Desist order entered on 2-15-72. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
misuse of credit facilities by controlling stockholders.
Order terminated 5-29-74 when compliance with all conditions was accomplished.
10
Deposits— $18,866,000
Cease and Desist order entered on 3-31-72. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
hazardous lending policies and inadequate capital caused by incompetent active
management and a complacent directorate.
Order terminated 8-28-73 when substantial compliance with almost all conditions
had been accomplished.
Deposits— $1,795,000
Cease and Desist order entered on 5-5-72. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
sharply declining asset condition and capital inadequacy resulting from two
successive inept management/ownership groups.
Order terminated 6-25-73 following change of management/ownership, improved
asset condition and substantial compliance with other parts of the order.
12
Deposits— $3,614,000
Cease and Desist order entered on 5-5-72. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
an excessive volume of high-risk loans, sizeable loan losses, and inadequate
capital which resulted from policies of a liberal, self-serving and domineer
ing controlling owner and weak, ineffective management.
Only partial compliance has been accomplished— new management— and order re
mains outstanding.
%
- 4 FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
Summary
Bank No.
13
Deposits— $59,975,000
Cease and Desist order entered on 8-18-72. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
failure to correct repeated and flagrant violations of applicable laws and
regulations.
Order terminated 5-14-73 upon compliance with requirements contained therein.
14
Deposits— $3,742,000
Cease and Desist order entered on 11-21-72. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
excessive risk in the loan account, inadequate capital, willful and continued
violations of applicable statutes, and generally unsatisfactory operations
resulting from liberal lending policies of self-serving controlling interests,
18
Order terminated 6-19-74 following substantial compliance with the corrective
requirements.
15
Deposits— $4,703,000
19
Cease and Desist order entered on 11-21-72. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
excessive exposure in the loan account, increasing loan losses, an inadequate
and diminishing level of capital, and unsatisfactory operations under the
self-serving domination of the controlling interests.
Order terminated 2-8-74 after substantial improvements in the bank's assetcapital condition and operations within the constraints of the Cease and
Desist order.
16
Deposits— $1,953,000
Cease and Desist order entered on 12-4-72. Bank ordered to cease and desist
from unsafe and unsqund practices and take affirmative action with respect to
excessive risk in the loan account, increasing losses and a shrinking level of
capital which resulted from liberal lending policies fostered by the bank's
management/ownership.
Order terminated 2-8-74 following examinations which disclosed improvements, £
and full or substantial compliance with all corrective provisions.
™
20
5
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
Summary
Deposits— $1,309,000
Cease and Desist order entered on 12-18-72. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
an excessive volume of classified loans, inadequate capital and poor liquidity
resulting from expansionary and liberal policies of inexperienced management/
ownership.
The bank was in substantial compliance with the order at the latest examina
tion but the order remains outstanding.
18
Deposits— $2,528,000
Cease and Desist order entered on 2-12-73. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
excessive adversely classified loans, and an inadequate capital structure
which developed as a result of liberal lending policies and the weak manage
ment ability of ownership and its subservient staff.
I
19
Order terminated 2-11-75 following substantial improvement in the bank's assetcapital condition.
Deposits— $28,025,000
Cease and Desist order entered 4-23-73. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to heavy
and severe adverse classifications of loans extended to a group of related con
struction firms which resulted in violations of law, heavy losses, deteriora
tion of other segments of the loan portfolio, and capital inadequacy.
Order terminated 12-23-74 following the elimination of the adversely classified
concentrations of credit and the injection of new capital funds.
20
Deposits— $3,829,000
Cease and Desist order entered 5-21-73. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to exces
sive risk in the loan account, a declining level of capital protection, deficit
earnings resulting from heavy loan losses and other problems stemming from a
management dispute resulting in the resignation of three directors including the
former executive officer. The order to cease and desist included requirements
for management improvements, rehabilitation of asset condition, a capital im
provement program, and adoption of written lending and internal operating policies,
Recommendation for termination in process, based on substantial compliance with
order.
6
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
Bank No.
21
I
Summary
Deposits— $ 3,057,000
Cease and Desist order entered 6-25-73. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to exces
sive adversely classified credits involving several out-of-area and/or selfserving loans, potential losses from irregularities, and inadequate capital
protection.
Order terminated 8-11-75 as conditions were fulfilled including the injection
of new equity capital.
22
Deposits— $2,913,000
Cease and Desist order entered 7-31-73. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to un
sound securities transactions and excessive municipal bond holdings which threat
ened the solvency of the bank through the resulting market depreciation, il
liquid position and trading losses incurred.
Bank was found in substantial compliance with the order at subsequent examina-j|
tions but the order remains outstanding.
^
23
Deposits— $5,466,000
Cease and Desist order entered 7-31-73. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to the
failure to comply with Federal Reserve Regulation Z.
Order terminated 11-26-75 after bank was found to be in compliance with the
order.
24
Deposits— $51,573,000
Cease and Desist order entered 9-24-73. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to pro
viding acceptable management, implementing and maintaining lending, investment,
and operating policies in accord with sound banking practices, conforming to all
applicable laws, rules, regulations, and reducing the excessive volume of weak
credits.
Order terminated 11-26-75 when the bank was found to be in compliance with the
order.
M
7
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
Summary
Deposits— $4,136,000
Cease and Desist order entered 10-15-73. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to high
volume of adversely classified loans, an excessive delinquency ratio, continued
violations of laws and regulations, and deteriorated capital adequacy which re
sulted from the increasingly liberal lending policies of the controlling stock
holder and executive officer, coupled with a complacent directorate and incompe
tent staff.
Order terminated 9-2-75 following improvements in asset quality, substantial com
pliance with requirements included in the order to cease and desist, and the re
vitalization of sincere concern to effect improvements by the staff and direc
torate.
Deposits— $13,887,000
Cease ând Desist order entered 1-29-74. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
excessive loan classifications, inept and self-serving management, violations
of law, concentrations of credit, and uncontrolled expenses.
Order terminated 7—24—74 following the sale of control of the bank to a new
group and injection of capital funds.
Deposits— $3,911,000
Cease and Desist order entered 4-11-74. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to seri
ous asset problems which developed as total loan volume was rapidly expanded,
capital inadequacy developed as the loan portfolio deteriorated in credit
quality, hazardous lending and collection policies, and violations of laws and
regulations.
Termination was recommended on 1-8-76 when the bank was found to be in substan
tial compliance; however, due to the illness of the bank's chief executive offi
cer the termination recommendation has been held in abeyance.
Deposits— $2,857,000
Cease and Desist order entered on 6-7-74. Bank ordered to cease and desist
from unsafe and unsound practices and take affirmative action with respect to
the heavy volume of adverse classifications, speculative land contracts to
out—of—territory borrowers, lack of sound lending, investment and operating
policies, and an inadequate capital structure.
Bank subsequently closed.
8
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8 (b)
(Cease and Desist Actions)
Bank No.
29
t
Summary
Deposits— $49,542,000
Cease and Desist order entered 6-11-75. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to the
large volume of adversely classified loans which far exceeded capital and re
serves, and centered in two massive concentrations of credit. Other weaknesses
consisted of an overloaned and illiquid position, inadequate capital protection,
and numerous, frequent and flagrant violations.
The order has been substantially complied with although the injection of new
capital funds remains to be accomplished. Management officials and their at
torneys continue to contest the order. The order remains outstanding.
30
Deposits— $15,114,000
Cease and Desist order entered 10-15-74. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to the mas
sive volume of weak loans, and loan losses taken in recent years, an inadequate
margin of capital protection, an overloaned and illiquid position, poor earnings,
and a pattern of numerous and repeated violations.
^
The bank is in substantial compliance with the order and a recommendation to
terminate the action is in process.
31
Deposits— $18,380,000
Cease and Desist order entered 3-26-75. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to unau
thorized and unlawful acts by its officers, directors or employees, including
the exceeding of lending limits and the acceptance of securities collateral
without observing prudent banking practices to prepare for the lawful and order
ly disposition of such securities in the event such disposition became necessary. |
Order outstanding.
32
Deposits— $9,924,000
Cease and Desist order entered 5-9-75. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to accepta
ble management, reduction of adversely classified assets and loan volume, adher
ence to loan policy, compliance with laws, rules and regulations, loan documenti
tation, internal routine and controls, injection of new capital funds, and disWI
continuance of cash dividends.
Order outstanding.
9
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
•
Summary
Bank No.
L 33
Deposits— $7,202,000
Cease and Desist order entered on 5-9-75. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to accepta
ble management, reduction of adversely classified assets, curtailment of loans
to insiders, injection of new capital, reduction of borrowings and loan volume,
compliance with laws, rules and regulations and loan policy, and discontinuance
of cash dividends.
Order outstanding.
34
Deposits— $6,501,000
Cease and Desist order entered on 6-19-75. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to accepta
ble management, reduction of adversely classified assets, injection of new capi
tal, compliance with laws, rules and regulations and loan policy, provisions for
adequate liquidity, borrowings, and discontinuance of cash dividends.
{
•
35
Order outstanding.
Deposits— $1,833,000
Cease and Desist order entered 8-11-75. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to accepta
ble management and management policies, reduction of adversely classified assets,
provisions for adequate capital and liquidity, and compliance with laws, rules
and regulations and loan policy.
Order outstanding.
36
Deposits— $6,046,000
Cease and Desist order entered 8-28-75. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to accepta
ble management, reduction of adversely classified assets, injection of new capi
tal, and compliance with laws, rules and regulations and loan policy.
1 1Lb
*c4
"
i nrr
Order
outstanding.
UITu c/\vJl» uu
L c in u x iiy •
ai
1
ìì
10
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Cease and Desist Actions)
Bank No.
37
Cease and Desist order entered 10-17-75. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to reduc
tion of adversely classified assets and compliance with laws, rules and regula
tions and loan policy.
Order outstanding.
38
Deposits— $7,742,000
Cease and Desist order entered 1-29-76. Bank ordered to cease and desist from
unsafe and unsound practices and take affirmative action with respect to accepl
ble management, reduction of adversely classified assets, injection of new cap:
tal, limitations on advances of credit to borrowers, compliance with laws, rul<
and regulations, retention of credit life and accident insurance commissions,
discontinuance of cash dividends, and elimination of a concentration of credit
Order outstanding.
Deposits— $9,129,000
IMI
I
Cease and Desist order entered 2-18-76. Bank ordered to cease and desist from I
unsafe and unsound practices and take affirmative action with respect to reduc
tion of adversely classified assets, refraining from participating in any new
I
loans and in any extension, renewal, refinancing, or additional extension of
loans acquired from closely related banks, compliance with laws, rules and regu- I
lations including Financial Recordkeeping Regulations and the Fair Credit R e p o r t-i
ing Act, injection of new capital, and discontinuance of dividends.
Order outstanding.
\
t
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(b)
(Formal Written Agreements)
Summary
Deposits— $12,251,000
Written agreement entered into on 10-27-71. Bank agreed for purposes of effect
ing correction of unsafe and unsound practices to take affirmative action with
respect to providing acceptable management, eliminating and reducing adversely
classified assets, correction of internal control deficiencies, adoption of and
compliance with an internal audit program, correction of and future compliance
with all applicable laws, rules and regulations, and adoption of and compliance
with a written loan policy.
The most recent examinations of January 1974 and November 1975 indicate substan
tial compliance with the agreement. The most recent report of examination is
being reviewed in the Review Section and consideration is being given to recom
mending that the agreement be terminated.
Deposits— $13,957,000
Written agreement entered into on 3-2-72. Bank agreed for purposes of effecting
correction of unsafe and unsound practices to take affirmative action with re
spect to providing acceptable management, eliminating and reducing adversely
classified assets, adoption of and compliance with a written loan policy, injec
tion of new capital, establishment of an unearned income account, adoption of
and compliance with an internal audit program, correction of internal control
deficiencies, and correction of and future compliance with all applicable laws,
rules and regulations.
The agreement is outstanding; however, the 7-14-75 FDIC examination report indi
cates the bank appears to be in substantial compliance with the agreement.
Deposits— $1,958,000
Written agreement entered into on 2-14-73. Bank agreed for purposes of effect
ing correction of unsafe and unsound practices to take affirmative action with
respect to the controlling shareholder purchasing for a period of three years
from date and within 60 days after the completion of any FDIC examination of
the bank, any loan which was classified Loss or Doubtful in subject bank that
originated in the controlling shareholder's chain of banks, other than subject
bank, and any loan held by and originating outside subject bank's regular trade
area, and subject bank was to divest itself of any loan originated in any of
the controlling shareholder's banks which were held in subject bank that had
been classified Substandard at another of the affiliated banks and purchased by
subject bank.
The agreement is outstanding, however, stock control has changed and the most
recent examination as of 2-27-76 is being processed in the Regional Office and
indicates substantial compliance. Consideration is being given by the Regional
Office to recommend termination of the agreement.
APPENDIX C-2
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(a)
(Action to Terminate Insured Status)
Attached is a case-by-case summary of 19 Termination of Insurance actions
issued by the Corporation since January 1971.
It should be noted that
several such actions are now in various stages of processing.
In addition to the listing, it should also be noted a number of other Ter
mination of Insurance actions have been recommended but were withdrawn prior
to action by our Board because of favorable interim affirmative actions on
the part of either the banks or m a n a g e m e n t -shareholders.
As in the case of
Cease and Desist actions, the threat of Termination of Insurance has caused
many favorable affirmative action programs on the part of banks which negated
the need for finalizing the actions.
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(a)
(Action to Terminate Insured Status)
Summary
Deposits— $11,143,000
Notice of Intention to Terminate Insured Status issued 1-22-71. Bank was found
in an unsafe and unsound condition and ordered to provide an active and capable
management, eliminate by charge-off or otherwise certain classified assets,
correct all violations of law listed in the report of examination, and to adopt
and strictly follow written loan policies if continued insured status was desired.
The action was terminated 6-30-71 wh6n subject was merged with another bank.
Deposits— *$13,419,000
Notice of Intention to Terminate Insured Status issued 3-12-71. Bank was found
in an unsafe and unsound condition and ordered to provide an active and capable
management, eliminate from its books certain assets, by charge-off or otherwise,
correct all violations of law listed in the examination report, adopt and strictly
follow written loan policies, pay no cash dividends without the prior consent of
the Banking Commissioner and the FDIC, reduce the loan-to-deposit ratio, not
accept or acquire, directly or indirectly, brokered deposits, eliminate from its
capital accounts all income collected but not earned, and to provide adequate
capital and reserves if continued insured status was desired.
The action was terminated 12-17-71 based upon substantial compliance with the
corrective orders.
Deposits— $3,827,000
Notice of Intention to Terminate Insured Status issued 6-30-71. Bank was found
in an unsafe and unsound condition and ordered to provide an active and capable
management, eliminate from its books certain assets, by charge-off or otherwise,
reduce the remaining classified assets, correct all violations of law listed in
the report of examination, adopt and strictly follow satisfactory written loan
policies, pay no cash dividends without the prior consent of the Commissioner of
Banking and the FDIC, and put the assets of the bank in such form and condition
as to be acceptable to the Commissioner of Banking and the FDIC if continued
insured status was desired.
The action was terminated 4—6—73 based upon substantial compliance with the
corrective orders.
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(a)
(Action to Terminate Insured Status)
Bank No.
4
Summary
Deposits— $5,925,000
1
Notice of Intention to Terminate Insured Status issued 11-19-71.
Bank was found
in an unsafe and unsound condition and ordered to provide an active and capable
management, eliminate from its books certain assets, by charge-off or otherwise,
refrain from extending credit, directly or indirectly for the benefit of a
director, reduce the remaining classified assets, adopt and strictly follow sati ,
factory written loan policies, pay no cash dividends without the prior consent
the Commissioner of Banking and the FDIC, and the assets of the bank were to be
put in such form and condition as to be acceptable to the Commissioner of Banking
and the FDIC if continued insured status was desired.
The action was terminated 7-7-72 based upon substantial compliance with the
corrective orders.
5
Deposits— $12,609,000
Notice of Intention to Terminate Insured Status issued 12-17-71. Bank was found
in an unsafe and unsound condition and ordered to eliminate from its book assets,
by charge-off or otherwise, certain classified assets, and other assets of t h e ^
bank were to be put in a satisfactory form and condition if continued insured
status was desired.
The action was terminated 7-14-72 based upon substantial compliance with the
corrective orders.
6
Deposits— $8,202,000
Notice of Intention to Terminate Insured Status issued 1-27-72.
Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, adopt acceptable loan policies,
correct violations of law, and provide acceptable capital funds if continued
insured status was desired.
The action was terminated 5-14-73 based upon substantial compliance with the
corrective order.
7
Deposits— $4,079,000
Notice of Intention of Terminate Insured Status issued 3-17-72.
Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management^
eliminate or reduce adversely classified assets, adopt acceptable loan p o l i c i e *
correct violations of law, and provide acceptable capital funds if continued
insured status was desired.
The action was terminated 12-4-72 based upon substantial compliance with the
corrective order.
3
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(a)
(Action to Terminate Insured Status)
Summary
tank N o .
8
Deposits— $1,857,000
Notice of Intention to Terminate Insured Status issued 5-1-72. Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, adopt acceptable loan policies,
and provide acceptable capital funds if continued insured status was desired.
The action was terminated 6-11-73 based upon substantial compliance with the
corrective order»
9
Deposits— -$12,649,000
Notice of Intention to Terminate Insured Status issued 10-30-72.
Bank was found
in an unsafe and unsound condition and ordered to eliminate or reduce adversely
classified assets, obtain supporting documents prior to extending credits, adopt
acceptable loan policies, and provide acceptable capital funds if continued in
sured status was desired.
The action was terminated 3-1-74 based upon substantial compliance with the
corrective order.
10
Deposits— $5,540,000
Notice of Intention to Terminate Insured Status issued 11-21-72.
Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, obtain supporting documents
prior to extending credits, strictly adhere to its written loan policies, correct
violations of laws and provide acceptable capital funds if continued insured
status was desired.
The action was terminated 5-29-74 based upon substantial compliance with the
corrective order.
Deposits— $3,913,000
Notice of Intention to Terminate Insured Status issued 5-14-73.
Bank was found
in an unsafe and unsound condition and ordered to eliminate or reduce adversely
classified assets, adopt acceptable loan policies, correct violations of law, and
provide acceptable capital if continued insured status was desired.
It
The action was terminated 8-11-75 based upon substantial compliance with the
corrective orders and the termination of affiliation with the bank by the
control ownership.
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(a)
(Action to Terminate Insured Status)
Summary
Deposits— $ 18,555,000
Notice of Intention to Terminate Insured Status issued 6-28-74.
Bank was found
in an unsafa and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, adopt acceptable loan policies,
and correct violations of law if continued insured status is desired.
The action to terminate insured status is in the hearing stage.
Deposits— $ 13,765,000
Notice of Intention of Terminate Insured Status issued 8-12-74. Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, adopt acceptable loan policies,
pay no cash dividends without prior written consent, provide acceptable capital,
and correct violations of law if continued insured status was desired.
The action was terminated 8— 11—75 because of temporary compliance; however, due
to further deterioration and the length of time since the issuance of the initial
order, a new order was simultaneously issued.
A
Deposits— $6,557,000
Notice of Intention to Terminate Insured Status issued 8-12-74. Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, adopt acceptable loan policies,
limit investment in securities to U. S. Government and/or Agency obligations
maturing within five years, cease paying preferential rates of interest on cer
tificates of deposit or other obligations to ownership interests, and correct
violations of law if continued insured status was desired.
The Commissioner of Banking closed the bank on 5-30-75.
Deposits— $4,174,000
Notice of Intention to Terminate Insured Status issued 6-19-75.
Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, reduce its loan volume, adopt
and comply with a loan policy, discontinue cash dividends, and obtain a certain
level of capital if continued insured status was desired.
Bank closed on 1-12-76.
5
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(a)
(Action to Terminate Insured Status)
Summary
Deposits— $821,000
Notice of Intention to Terminate Insured Status issued 7-25-75. Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, define an acceptable trade area,
curtail direct and indirect loans to insiders, restrict its loan volume, comply
with certain investment restrictions, comply with all applicable laws, rules, an !
regulations, discontinue cash dividends, and obtain a certain level of capital ir
continued insured status is desired,
An examination to determine the extent of correction was made on 11—25— 75 and the
bank was found not to be in compliance with the order. A recommendation to con
tinue the action is in process.
Deposits— $ 13,849,000
Notice of Intention to Terminate Insured Status issued 8-11-75. Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, reduce and maintain loan volume
at a certain level, eliminate all adversely classified insider loans and reduce
and maintain all such loans at a certain level, adopt and comply with a loan
policy, discontinue cash dividends, obtain a certain level of capital, comply
with all applicable laws, rules, and regulations, and refrain from participating
in any transactions with a certain affiliate if continued insured status is
desired.
An examination to determine the extent of correction was made on 10-31-75 and the
bank was found not to be in compliance with the order.
The action is now in the
hearing stage.
Deposits— $16,089,000
Notice of Intention to Terminate Insured Status issued 9-16-75. Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management,
eliminate or reduce adversely classified assets, adopt and comply with a loan
policy, provide for an orderly liquidation of certain stock holdings, comply
with applicable laws, rules, and regulations, appoint a committee to approve
and control expenses, discontinue cash dividends, and obtain a certain level
of capital if continued insured status is 'desired.
An examination to determine the extent of correction has just been completed and
a determination will be made as to whether the action should be continued.
6
FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Act - Section 8(a)
(Action to Terminate Insured Status)
Bank No.
19
Summary
Deposits— $15,883,000
Notice of Intention to Terminate Insured Status issued 10-9-75. Bank was found
in an unsafe and unsound condition and ordered to provide acceptable management
eliminate or reduce adversely classified assets, reduce and maintain loan volume
at a certain level, reduce its overdue loans not to exceed a certain percentage
of outstanding loans, maintain a primary and secondary reserve position equal ti
a certain percentage of total resources, adopt and.comply with loan and Invest
ment policies, and obtain a certain level of capital if continued insured status
was desired.
r '
Bank closed on 10-24-75.
@FedFRASER