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FDIC Enforcement Decisions and Orders

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{{10-31-91 p.C-1342}}
   [10,310] In the Matter of Foster Bank, Chicago, Illinois, Docket No. FDIC-91-245b

   Bank to cease and desist from such unsafe or unsound practices as following hazardous lending and lax collection practices; operating in violation of applicable laws or regulations; operating with deteriorating capital; operating with excessive volumes of adversely classified assets; operating with an excessive level of overdue loans; operating without adequate policies to monitor asset growth; operating with inadequate allowance for loan and lease losses; operating with
{{7-31-93 p.C-1343}}inadequate routine and controls policies; operating with marginal liquidity position; operating with directors, officers and employees who have insufficient knowledge to ensure compliance with regulatory requirements; operating with management whose policies are detrimental to the Bank; and failing to provide adequate supervision over the Bank's affairs. (This order was terminated by order of the FDIC dated 5-11-93; see15,669.)

   [.1] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.2] Management—Qualifications—Review
   [.3] Loan Policy—Written Revision—Minimum Requirements
   [.4] Loans—Risk Position—Reduce—Written Plan Required
   [.5] Violations of Law—Eliminate/Correct
   [.6] Assets—Adversely Classified—Eliminate/Reduce
   [.7] Allowance for Loan and Lease Losses—Establish/Maintain
   [.8] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.9] Loans—Special Mention—Correct Deficiencies
   [.10] Profit Plan—Minimum Requirements
   [.11] Assets—Total Assets—Limits on Increase
   [.12] Bank Operations—Deficiencies—Correct
   [.13] Dividends—Restricted
   [.14] Technical Exceptions—Correct/Eliminate
   [.15] Loans—Overdue—Ratio—Reduction Required
   [.16] Liquidity—Written Policy—Minimum Requirements
   [.17] Liabilities—Volatile—Reduce
   [.18] Interest Rates—Deposits
   [.19] Advertising—Expenditures—Review
   [.20] Consumer Laws—Compliance Officer Required
   [.21] Consumer Laws—Compliance Audit Required
   [.22] Consumer Laws—Compliance Program—Minimum Requirements
   [.23] Bank Secrecy Act—Compliance Required
   [.24] Shareholders—Disclosure—Cease and Desist Order
   [.25] Board of Directors—Committee to Review Compliance with Cease and Desist Order
   [.26] Compliance Reports—Frequency

In the Matter of

FOSTER BANK
CHICAGO, ILLINOIS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Foster Bank, Chicago, Illinois ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking practices and violations of law and regulation alleged to have been committed by the Bank and of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated August 7, 1991, whereby solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law and regulation, the Bank consented to
{{7-31-93 p.C-1344}}the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws and regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   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 unsafe or unsound banking practices and violations of law and regulation listed below. Each of the general items listed below refers specifically to conduct or practices described in the FDIC Report of Examination dated January 2, 1991 ("Report of Examination"), or the FDIC Compliance Report dated January 22, 1991 ("Compliance Report").
   A. Engaging in imprudent lending and lax collection practices;
   B. Violating laws and regulations as described on pages 6-a through 6-a-5 of the Report of Examination and pages 2-a-2 through 2-a-22 of the Compliance Report;
   C. Operating with deteriorating capital for the kind and quality of assets held;
   D. Operating with an excessive level of classified assets;
   E. Operating with an excessive level of overdue loans and failing to recognize nonaccrual loans;
   F. Operating without adequate policies to monitor and control asset growth;
   G. Operating without an adequate allowance for loan and lease losses for the volume, kind, and quality of loans held;
   H. Operating without adequate internal routines and controls;
   I. Operating with a marginal liquidity position considering the overall condition of the Bank;
   J. Operating with directors, officers and employees who do not have knowledge of regulatory requirements sufficient to ensure compliance with laws and regulations referred to in the Compliance Report ("Consumer Laws");
   K. Operating with deficient policies and internal routines and controls to ensure compliance with the Consumer Laws;
   L. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management of the Bank to ensure compliance with the Consumer Laws;
   M. Operating with a management whose policies and practices are detrimental to the Bank and which jeopardize the safety of its deposits; and
   N. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management of the Bank.
   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

[.1] 1. (a) Within 30 days from a determination by the board of directors of the Bank or the FDIC that the Bank's ratio of tier 1 capital to total assets is less than 10.5 percent, the Bank shall formulate and adopt a written plan to maintain the Bank's tier 1 capital to total assets ratio at a minimum of 10 percent.
   (b) The written plan required to be developed by this paragraph shall be submitted to the Regional Director of the FDIC's Chicago Regional Office ("Regional Director") for review and comment. Within 30 days of receipt of any comment from the Regional Director, and after amending the plan in accordance with any recommended changes, the Bank shall approve and implement the plan. The approval shall be recorded in the minutes of the board of directors' meeting.
   (c) Within 30 days from each June 30 and December 31 following the date required for compliance with paragraph 1(a) of this ORDER, the Bank's board of directors shall determine the Bank's tier 1 capital as a percentage of the daily average of its total assets for the quarter preceding the respective June 30 and December 31 dates ("tier 1 capital ratio"). If the tier 1 capital ratio is less than 10 percent, the Bank's board of directors shall, within 60 days from the date of that review, increase its tier 1 capital ratio to not less than 10 percent as of the end of that preceding semi-annual period. For the purpose of this paragraph 1(c), "tier 1 capital" and "total assets" shall have the meaning ascribed to those terms in Part 325 of
{{10-31-91 p.C-1345}}the FDIC's Rules and Regulations, 12 C.F.R. Part 325.
   (d) The formal tier 1 capital ratio analysis as of June 30 and December 31 of each year described in paragraph 1(c) of the ORDER shall not negate the responsibility of the Bank and its board of directors for maintaining throughout the year an adequate level of capital protection for the kind, quality and degree of market depreciation of assets held by the Bank.
   (e) Any increase in tier 1 capital necessary to meet the requirements of this paragraph may be accomplished by the following:

       (i) The sale of equity securities allowed as tier 1 capital under 12 C.F.R. Part 325 ("Bank Securities"); or
       (ii) The collection in cash of assets previously charged off; or
       (iii) The direct contribution of cash by the directors and/or the shareholders of the Bank; or
       (iv) Any combination of the above means; or
       (v) Any other method acceptable to the Regional Director.
   (f) If all or part of the increase in tier 1 capital required by this paragraph is to be accomplished by the sale of new securities, the board of directors of the Bank shall forthwith adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held or controlled by them in favor of said plan. Should the implementation of the plan involve a public distribution of Bank Securities, including a distribution limited only to the Bank's existing shareholders, the Bank shall prepare detailed offering materials fully describing the Bank Securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Federal securities laws. Prior to the implementation of the plan and, in any event, not less than twenty (20) days prior to the dissemination of such materials, the materials used in the sale of the Bank Securities shall be submitted to the FDIC at Washington, D.C., for its review. Any material changes requested to be made in the materials by the FDIC shall be made prior to their dissemination.
   (g) In complying with the provisions of subparagraph (e) of this paragraph, the Bank shall provide to any subscriber and/ or purchaser of the Bank Securities written notice of any planned or existing development or other changes which are materially different from the information reflected in any offering materials used in connection with the sale of the Bank Securities. The written notice required by this paragraph shall be furnished within ten (10) calendar days of the date any material development or change was planned or occurred, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of the Bank's original offering materials.

[.2] 2. (a) Within 90 days from the effective date of this ORDER, the Bank shall have, and thereafter retain, a sufficient number of qualified executive officers. Each executive officer shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. During the life of this ORDER, the Bank shall promptly notify the Regional Director of any changes in any of the Bank's executive officers not otherwise required by section 32 of the Act ("section 32"), 12 U.S.C. § 1831(i), and shall submit to the Regional Director a written statement of the qualifications of any such new executive officer. The notification must include the name and employment experience of any replacement personnel and must be provided prior to the individual assuming the new position. For the purpose of this paragraph 2(a), "executive officer" shall have the meaning ascribed to that term in section 215.2(d) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 215.2(d).
   (b) The qualifications of executive officers shall be assessed on their ability to:

       (i) Comply with the requirements of this ORDER;
       (ii) Operate the Bank in a safe and sound manner;
       (iii) Comply with applicable laws and regulations; and
       (iv) Restore all aspects of the Bank to a safe and sound condition, includ- {{10-31-91 p.C-1346}}ing asset quality, capital adequacy, earnings, management effectiveness, and effective internal controls.

[.3] 3. (a) Within 60 days from the effective date of this ORDER, and at least annually thereafter, the Bank shall review its loan policy and practices for adequacy and, based upon this review, shall appropriately revise and implement the policy to strengthen lending procedures and abate additional loan deterioration. The reviews required by this paragraph shall be recorded in the minutes of the board of directors' meeting.
   (b) The initial revision of the Bank's loan policy required by this paragraph, at a minimum, shall include the following:
       (i) Provisions which address: the board's responsibility in reviewing and approving loans including specific provisions for prior approval depending upon the amount of credit extended, and type of loan; guidelines for obtaining and reviewing real estate appraisals in compliance with Part 323 of the FDIC's Rules and Regulations, 12 C.F.R. Part 323; maintenance and review of complete, accurate and current credit files, and financial information on each borrower; and appropriate and adequate collection procedures.
       (ii) A provision requiring that advances or renewals of all extensions of credit in amounts exceeding $5,000 be supported by complete financial data attested to by the borrower; a clearly defined purpose and full explanation of any adverse credit report information; a predetermined repayment source and schedule; and where applicable, complete collateral documentation.
       (iii) Provisions requiring loan committee review and monitoring of the status of repayment and collection of overdue and maturing loans, as well as those loans which were classified "Substandard" in the Report of Examination, or in any future examination conducted by the FDIC or State authorities.
       (iv) Provisions specifically addressing limitations on land development, construction and bridge loans.
       (v) Provisions requiring a nonaccrual policy in accordance with the Federal Financial Institutions Examination Council's ("FFIEC") Instructions for the Consolidated Reports of Condition and Income.
   (c) Within 60 days from the effective date of this ORDER, the Bank shall implement a written, detailed internal audit program designed to monitor and ensure compliance with the Bank's loan policy and procedures.
   (d) The written loan policy and audit program required to be developed by this paragraph shall be submitted to the Regional Director for review and comment. Within 30 days from the receipt of any comment from the Regional Director, the Bank shall amend the loan policy and audit program in accordance with any recommended changes. The amendments required by this paragraph shall be recorded in the minutes of the board of directors' meeting.

[.4] 4. (a) Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written plan to lessen the Bank's risk position in each loan in excess of $20,000 which is classified "Substandard" in the Report of Examination. Such plan shall include, but not be limited to, the following:

       (i) Dollar levels to which the Bank will reduce each loan within 6 to 12 months from the effective date of this ORDER;
       (ii) Provisions for the submission of monthly written progress reports to the Bank's board of directors for review and notation in minutes of the meetings of the board of directors; and
       (iii) Provisions for the submission of bi-monthly written progress reports to the Regional Director.
   (b) The written plan required to be developed by this paragraph shall be submitted to the Regional Director for review and comment. Within 30 days from receipt of any comment from the Regional Director, the Bank shall amend the written plan in accordance with any recommended changes. The approval of the amendments required by this paragraph shall be recorded in the minutes of a board of directors' meeting.

   [.5] 5. Within 90 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and regulation described on page 6-a through 6-a-5 of the Report of Examination and pages
{{10-31-91 p.C-1347}}2-a through 2-a-22 of the Compliance Report. In addition, the Bank shall implement procedures to ensure future compliance with all applicable laws and regulations.

   [.6] 6. Within 30 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets or portion of assets classified "Loss" in the Report of Examination. These charge-offs should be reflected on the Bank's Report of Condition and Income as of June 30, 1991 or in prior reports. Reports of Condition and Income required by the FDIC as of June 30, 1991, shall be amended and refiled if they do not reflect the charge-off of these items. Reduction of these assets with proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.

[.7] 7. (a) Within 30 days from the effective date of this ORDER, the Bank shall replenish its allowance for loan and lease losses by an expense entry in an amount equal to those loans required to be charged off by paragraph 6 of this ORDER.
   (b) Within 30 days from the effective date of this ORDER, the Bank shall make a provision to the allowance for loan and lease losses which, after careful review and consideration by the board of directors, reflects the potential for further losses in the "Substandard" loan classifications and all other loans in its portfolio. In no event, shall the allowance for loan and lease losses represent less than 1.50 percent of total loans and leases.
   (c) Within 30 days from the effective date of this ORDER, Reports of Condition and Income required by the FDIC and filed by the Bank subsequent to June 30, 1991, shall be amended and refiled if they do not reflect a provision for loan and lease losses which is adequate considering the condition of the Bank's loan and lease portfolio and which, at a minimum, incorporate the adjustments required by this paragraph.
   (d) Prior to the submission or publication of all Reports of Condition and Reports of Income required by the FDIC after the effective date of this ORDER, the Bank shall review the adequacy of the allowance for loan and lease losses and accurately report the same. The minutes of the board of directors' meeting at which such review is undertaken shall indicate the results of the review, the amount of the increase in the allowance recommended, if any, and the basis for determination of the amount of the allowance provided.

[.8] 8. (a) Following the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who is already obligated in any manner to the Bank on any extension of credit (including any portion thereof) that has been charged off the books of the Bank so long as such credit remains uncollected.
   (b) Following the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower whose loan or other credit has been classified "Substandard," or is listed for "Special Mention" and is uncollected, unless the Bank's board of directors has adopted a detailed written statement of explanation which supports the extension and includes, at a minimum, the reasons why extending such credit is in the best interests of the Bank. A copy of the statement shall be placed in the appropriate loan file and recorded in the minutes of the applicable board of directors' meeting.

   [.9] 9. Within 60 days from the effective date of this ORDER, the Bank shall correct all deficiencies in those assets listed for "Special Mention" in the Report of Examination.

[.10] 10. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and fully implement a written Profit Plan. This plan shall address, at a minimum, the following:

       (i) Goals and strategies for improving and sustaining the earnings of the Bank, including:
         (a) an identification of the major areas in, and means by which, the board will seek to improve the Bank's operating performance;
         (b) realistic and comprehensive budgets;
         (c) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections;
         (d) a description of the operating assumptions that form the basis for,
      {{10-31-91 p.C-1348}}and adequately support, major projected income and expense components; and
       (ii) Coordination of the Bank's loan, investment, and operating policies and budget and profit planning, with the funds management policy.
   (b) The written plan required to be developed by this paragraph shall be submitted to the Regional Director for review and comment. Within 30 days from receipt of any comment from the Regional Director, and after amending the plan in accordance with any recommended changes, the Bank shall approve and implement the plan. The approval shall be recorded in the minutes of the board of directors' meeting.

[.11] 11. (a) As of the effective date of this ORDER, the Bank shall not increase its total assets without the prior written approval of the Regional Director, except that the Bank may increase its total assets without the prior written approval of the Regional Director by investing in the following: (1) cash; (2) U.S. Government securities having a zero percent risk weight; (3) investment securities having an investment grade rating by at least one nationally recognized rating service and a remaining stated maturity of eight years or less; (4) one-to-four family residential properties and mortgage-backed securities having a risk weight of fifty percent or less; and (5) loans (including repurchase agreements) at least 100 percent collateralized by securities issued or guaranteed by the U.S. Treasury, U.S. Government agencies, or U.S. Government sponsored agencies and having a risk weight of twenty percent. For the purpose of this paragraph, "total assets" has the meaning ascribed to that term by the FFIEC's Instructions for the Consolidated Reports of Condition and Income, and "risk weight" has the meaning ascribed to that term in Part 325, Appendix A of the FDIC Rules and Regulations, 12 C.F.R. Part 325, Appendix A. Nothing in this paragraph shall relieve the Bank from its obligation to comply with sections 304.6 and 337.6 of the FDIC's Rules and Regulations, 12 C.F.R. §§ 304.6 and 337.6.
   (b) During the life of this ORDER, the Bank shall not increase its total assets pursuant to subparagraph 11(a) by more than 3 percent between the end of a calendar quarter (beginning as of June 30, 1991) and the end of the next calendar quarter without first providing, at least 30 days prior to its implementation, a growth plan to the Regional Director. Such growth plan shall include the funding source to support the projected growth, as well as the anticipated use of funds. The growth plan shall not be implemented without the prior written consent of the Regional Director. In no event shall the Bank increase its total assets by more than 12 percent annually.

[.12] 12. (a) Within 90 days from the effective date of this ORDER, the Bank shall correct the deficiencies in internal routines and controls described on pages 6-b through 6-b-2 in the Report of Examination.
   (b) During the life of this ORDER, the Bank shall forward copies of any external audit reports to the Regional Director within 10 days from the Bank's receipt of such reports.

   [.13] 13. During the life of this ORDER, the Bank shall not declare or pay any dividends without the prior written approval of the Regional Director.

   [.14] 14. Within 90 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all of the technical exceptions described on pages 2-f-1 through 2-f-12 of the Report of Examination. In addition, the Bank shall implement procedures to preclude future technical exceptions.

   [.15] 15. Within 30 days from the effective date of this ORDER, the Bank shall establish and implement a plan to reduce its ratio of overdue loans and leases to gross loans and leases to no more than 5 percent.

   [.16] 16. During the life of this ORDER, the Bank shall maintain a liquidity ratio (net cash, short term, and marketable assets divided by net deposits and short term liabilities) of no less than 35 percent as calculated on page 5-a of the Report of Examination.

   [.17] 17. Within 30 days from the effective date of this ORDER, the Bank shall establish and implement a plan to reduce its dependency ratio (net potentially volatile liabilities divided by total earning assets less total short term investments) as calculated on page 5-a of the Report of Examination. Within 90 days from the effective date of this ORDER, the Bank shall reduce its dependency ratio to 10 percent. Within 180
{{10-31-91 p.C-1349}}days of the effective date of this ORDER, the Bank shall reduce its dependency ratio to 2 percent.

   [.18] 18. Upon the effective date of this ORDER, the Bank shall cease paying significantly higher than market rates on any of the Bank's deposits. For the purpose of this paragraph a "significantly higher" rate shall have the meaning ascribed to that term in section 337.6(a)(1)(ii) of the FDIC's Rules and Regulations, 12 C.F.R. § 337.6(a)(1)(ii). Nothing in this paragraph shall relieve the Bank from its obligation to comply with section 337.6 of the FDIC's Rules and Regulations, 12 C.F.R. § 337.6.

   [.19] 19. Within 30 days from the effective date of this ORDER, the Bank shall perform an analysis of the costs and benefits of its advertising expenditures. All advertising expenditures shall be reviewed and approved by the board of directors. Such reviews and approvals, including the benefits expected to accrue to the Bank from such expenditures shall be noted in the board minutes.

[.20] 20. (a) Within 60 days from the effective date of this ORDER, the Bank shall have and thereafter retain a qualified "compliance officer." Such compliance officer shall be given written authority by the Bank's board of directors to implement and supervise the Bank's program for compliance with the Consumer Laws. The compliance officer shall report directly to the Bank's board of directors. The compliance officer shall be provided training in applicable consumer laws, and said training shall be reported to, and recorded in the minutes of, the board of directors each calendar quarter.
   (b) The Bank shall promptly notify the Regional Director of the identity of the compliance officer. If the compliance officer is to be added as a director of the Bank or employed as a senior executive officer, the Bank shall comply with the requirements of section 32 of the Act, 12 U.S.C. § 1831i, and section 303.14 of the FDIC's Rules and Regulations, 12 C.F.R. § 303.14, prior to the addition of the compliance officer to such position.
   (c) The assessment of whether the Bank has a "qualified compliance officer" shall be based upon the officer's bringing the Bank in compliance with the requirements of this ORDER and with the Consumer Laws.

   [.21] 21. Each calendar quarter, the Bank or a consultant shall perform an internal audit of the Bank's compliance program. Any audit of the compliance program performed internally shall be performed or supervised by an officer of the Bank who has knowledge of the requirements of the Consumer Laws. The results of the audit and any recommendation by the compliance officer, the consultant and/or the board of directors shall be recorded in the minutes.

   [.22] 22. Within 60 days from the effective date of this ORDER, the Bank shall establish a written compliance program, as that term is defined in the FDIC Manual for Compliance Examinations. Relevant portions of the manual are made a part of this ORDER and are attached as Appendix A. The compliance program shall be adopted by the Board and shall set forth policies and procedures designed to meet the Bank's compliance responsibilities in a comprehensive manner on an ongoing basis. The board of directors shall assure implementation of and adherence to the compliance program. At a minimum, the compliance program shall specifically address the following areas:

       (a) Appointment of a compliance officer, including a clear delineation of the officer's duties and responsibilities as referenced in paragraph 20(a) of this ORDER;
       (b) Education and training of Bank personnel, including training in compliance with Consumer Laws for all Bank employees involved in lending, and for any other Bank employees whose responsibilities require knowledge of and compliance with Consumer Laws;
       (c) Establishment of nondiscriminatory lending criteria;
       (d) Establishment of loan application procedures;
       (e) Forms review;
       (f) Establishment of an audit program which shall include policies and procedures for monitoring the Bank's compliance with Consumer Laws, including a quarterly review of the Bank's compliance program by the compliance officer, the results of which shall be in writing, reported to the Bank's board of directors
    {{10-31-91 p.C-1350}}and recorded in the minutes of the board meeting at which the report is made;
       (g) Establishment of a procedure to handle consumer complaints; and
       (h) Overall review of consumer lending procedures for compliance with Bank policy.

   [.23] 23. Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written program to ensure compliance with the Bank Secrecy Act ("BSA"), 31 U.S.C. §§ 5311-5326.
       (a) At a minimum, a system of internal controls shall be designed to:
         (i) Identify reportable transactions at a point where all the information necessary to properly complete the required reporting forms can be obtained;
         (ii) Ensure that all required reports are accurately completed and properly filed;
         (iii) Ensure that customer exemptions are properly granted and recorded, including the maintenance of documentation sufficient in detail so as to substantiate exemptions granted;
         (iv) Provide for adequate supervision of employees who accept currency transactions, complete reports, grant exemptions or engage in any other activity covered by 31 C.F.R. Part 103; and
       (b) The Bank shall adopt and implement a system of internal testing for compliance with the BSA and the Department of the Treasury's Regulation for Financial Recordkeeping and Reporting of Currency and Foreign Transactions ("Financial Recordkeeping Regulation"), 31 C.F.R. Part 103, which include, at a minimum:
         (i) A test of the Bank's internal procedures for monitoring compliance with the BSA, including interviews of employees who handle cash transactions and their supervisors;
         (ii) A sampling of large currency transactions followed by a review of currency transaction report filings;
         (iii) A test of the validity and reasonableness of the customer exemptions granted by the Bank;
         (iv) A test of the Bank's recordkeeping system for compliance with the BSA; and
         (v) Documentation of the scope of the testing procedures performed and the finding of the testing. Any apparent violations, exceptions or other problems noted during the testing procedures should be promptly reported to the board of directors.
       (c) The Bank shall designate an individual or individuals to be responsible for coordinating and monitoring compliance with the BSA.
       (d) The Bank shall adopt and implement a training program which shall provide training for all Bank employees involved in Bank operations whose responsibilities include compliance with the BSA and the Financial Recordkeeping Regulation.

   [.24] 24. Following the effective date of this ORDER, the Bank shall send to its shareholders, or otherwise furnish a description of this ORDER: (1) in conjunction with the Bank's next shareholder communication; and (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC at Washington, D.C. for review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.

   [.25] 25. Within 30 days from the effective date of this ORDER, the Bank shall establish a compliance committee comprised of at least three directors. No committee member may be an executive officer or principal shareholder, as those terms are defined in sections 215.2(d) and (j) of Regulation O, 12 C.F.R. §§ 215.2(d) and (j). The committee shall monitor compliance with this ORDER, and on a monthly basis, shall submit to the board of directors a written report detailing the Bank's compliance with this ORDER, including compliance with its written loan and audit policies. The monthly compliance report shall be incorporated into the minutes of the corresponding board of directors' meeting.

   [.26] 26. On the last day of the second month following the date of issuance of this ORDER, and every third month thereafter, the Bank shall furnish written progress reports to the Regional Director detailing the
{{10-31-91 p.C-1351}}form and manner of any actions taken to secure compliance with the ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has, in writing, released the Bank from making further reports.
   The effective date of this ORDER shall be 10 days after its issuance by the FDIC.
   The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and its successors and assigns.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Dated: August 16, 1991.
   Pursuant to delegated authority.

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