FDIC Issues Cease And Desist Orders To 20 Problem Banks – Why Are These Banks Still Open?

FDIC Cease and Desist Orders

The FDIC made public today a list of 20 banking institutions that were recently issued cease and desist orders from the FDIC, as follows:

FINAL ORDERS ISSUED PURSUANT TO SECTION 8(b), 12 U.S.C. § 1818(b) (Cease-and-Desist)

A review of some of the cease and desist orders listed above indicate that the banks cited have committed numerous and serious violations of Federal Banking rules and regulations.  Here are the specific reasons listed by the FDIC for issuing a cease and desist order on one of the banks listed above.

The FDIC considered the matter and determined that it had reason to believe that the Bank engaged in unsafe or unsound banking practices and violations of law and/or regulations.

IT IS HEREBY ORDERED that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and assigns, cease and desist from the following unsafe or unsound banking practices and violations of law and/or regulations:

(a) Operating with a board of directors (“Board”) that has failed to provide adequate supervision over and direction to the management of the Bank;
(b) Operating with inadequate management;
(c) Operating with inadequate equity capital and reserves in relation to the volume and quality of assets held by the Bank;
(d) Operating with a large volume of poor quality loans;
(e) Operating with inadequate oversight of the loan portfolio and concentrations of credit;
(f) Operating with an inadequate allowance for loan and lease losses (“ALLL”);
(g) Operating with lax underwriting and weak loan administration practices;
(h) Operating with inadequate provisions for liquidity and funds management;
(i) Operating in apparent violation of laws, regulations, and/or Statements of Policy as more fully discussed in the FDIC Report of Examination dated September 2, 2008 (“Report”), and
(j) Operating in such a manner as to produce operating losses.

After reading the above cited reasons for the FDIC cease and desist orders, a logical mind should rapidly come to two conclusions.

1. No depositor should be keeping funds at these banks in excess of FDIC insurance coverage – see Depositors Lose $1.1 million.

2. The institutions listed should be closed.  The FDIC cites a long list of reasons for the charge that these banks have “engaged in unsafe or unsound banking practices and violations of law and/or regulations”.

Why has the FDIC not closed these banks?  (See Is The FDIC Ready?) The FDIC does not publish their Problem Bank List to avoid causing public apprehension and a possible run on the banks.  Is the FDIC publishing this list to give “fair warning” to those depositors with balances in excess of the FDIC coverage limit?  Given the extreme problems cited by the FDIC with the banks listed, expect many of these institutions to wind up on the Failed Bank List.


  1. Why are these banks still open?

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