The FDIC announced in a press release today a total of 48 enforcement actions taken against banks and individuals in June 2012. In May, the FDIC issued 56 enforcement actions.
Enforcement actions issued in June included three consent orders, two prompt corrective actions, nine removal and prohibition orders, twelve civil money penalties, five modifications of consent orders and eleven orders terminating previous cease and desist orders and consent orders.
Banks receiving enforcements actions are very often problem banks with a variety of financial and management weaknesses. The number of banks classified as “problem banks” by the FDIC remains stubbornly high four years after the banking crisis began in 2008. The FDIC currently insures deposits at 7,309 banks and savings associations, of which 772 (10.6%) are classified as problem banks by the FDIC at March 31, 2012.
As noted in a previous post consent orders are issued to a bank deemed operating in an “unsafe and unsound” manner. A prompt corrective action notice is a far more serious situation which is often followed by regulatory closure of the bank involved.
A consent order is issued by the FDIC when regulators determine that a bank is operating in an “unsafe or unsound” manner. A bank signing a consent order is required to take corrective actions for the deficiencies cited in the consent order. If a bank is able to cure the deficiencies cited in the consent order, the FDIC can terminate the order.
A prompt corrective action notice (PCA) requires a bank to take immediate actions to address serious managerial or financial deficiencies. A PCA is a much more serious action than a consent order and is typically issued to a capital impaired bank that is in serious financial difficulty. A bank issued a PCA is classified as undercapitalized, significantly undercapitalized or critically undercapitalized and operating in an unsafe and unsound manner. Many of the banks issued prompt corrective action notices are unable to raise additional capital and wind up being closed by regulators.
The three banks issued consent orders by the FDIC in June are listed below:
- South Valley Bank & Trust, Klamath Falls, Oregon
- First Security Bank of Helena, Helena, Montana
- Valley Bank, Fort Lauderdale, Florida
The two banks issued prompt corrective actions notices are listed below:
- Westside Community Bank, University Place, Washington
- Sevier County Bank, Sevierville, Tennessee
Both of the above banks are given an overall financial score of only 1 out of 5 (with 5 being the best Institutional Health rating possible) by DepositAccounts, which ranks banks for financial strength. The troubled asset ratio of Westside Community Bank is 435% and for Sevier County Bank 237%. Banks with a troubled asset ratio of over 100% have historically had a very high probability of failure.
The full list of enforcement actions issued by the FDIC in June can be viewed at FDIC June Enforcement Decisions and Orders.