FDIC Issues 80 Enforcement Actions In August Against Banks and Individuals

The FDIC announced today that a total of 80 enforcement actions were issued against banks and individuals in August.  In the previous month, the FDIC issued 56 enforcement actions.

Enforcement actions taken during August included the following:

  • 19 civil money penalties
  • 12 consent orders
  • 19 orders terminating consent and cease and desist orders
  • 18 section 19 orders
  • 3 orders terminating prompt corrective action directives

Despite the stabilization of the banking industry due to extraordinary support efforts by both the Federal Reserve and government, over 10% of all banks  insured by the FDIC remain on the Problem Bank List.  For the quarter ending June 30, 2012, a total of 732 banks were classified as “problem banks” by the FDIC, down from 772 banks in the previous quarter.  The FDIC insures deposits at 7,246 banks and savings associations.  Virtually all of the banks on the Problem Bank List have outstanding enforcements actions issued by various regulatory agencies.

Banks on the problem bank list generally have a variety of unresolved managerial and financial problems.  Banks with inadequate capital ratios find it extremely difficult to attract investor capital due to ongoing concerns about the health of both the U.S. economy and the banking industry.

Ironically, healthy banks that want to expand their market share and are able to purchase another bank are inclined to wait for a bank to fail before purchasing the institution.  By purchasing a failed bank, the acquiring bank receives generous FDIC financial assistance which makes the failed bank acquisition immediately accretive to earnings.

Two of the most serious regulatory actions that can be taken against a bank by regulators are the issuance of a consent order or a prompt corrective action notice (PCA).  Consent orders are issued to banks that are considered to be operating in “an unsafe and unsound” manner.  More serious is a PCA notice in which regulators demand immediate corrective action to improve capital adequacy.  Most of the banks issued a PCA eventually wind up failing.

Section 19 orders are issued by the FDIC under provisions of Section 19 of the Federal Deposit Insurance Act which prohibits a person convicted of “any criminal offense involving dishonesty or breach of trust” from participating in the control or management of a federally insured financial institution.

The 12 banks issued Consent Orders during August are listed below.

  1. The Bank of Harlan, Harlan, Kentucky
  2. Banamex USA, Century City, CA
  3. Flathead Bank of Bigfork, MO
  4. Colonial Co-operative Bank, Gardner, MA
  5. The Bancorp Bank, Wilmington, DE
  6. Higher One, Inc., New Haven, CT
  7. Doral Bank, San Juan, PR
  8. Bay Bank, Green Bay, WI
  9. Elysian Bank, Elysian, MN
  10. Community Bank and Trust – West Georgia, LaGrange, GA
  11. Alliance Bank Central Texas, Waco, TX
  12. Northwestern Bank, Traverse City, MI

The full list of enforcement actions issued by the FDIC during August can be viewed at FDIC Enforcement Decisions and Orders.

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