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FDIC Enforcement Decisions and Orders |
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FDIC issued a cease and desist order to a bank and its directors for maintaining an excessive and disproportionately large volume of inferior quality assets in relation to the total capital and reserves of the bank, failing to make provisions for an adequate reserve for loan losses, misrepresenting and misstating the actual earnings and income of the bank, and operating with inadequate capital and reserves in relation to the large volume of inferior quality assets held by the bank. FDIC also ordered the bank to take affirmative action to correct these practices.
[.1]Cease and Desist OrdersAdditional Capital Ordered
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[.3]ManagementConduct of Prior Management
[.4]CapitalAdequacyUnsafe or Unsound Practices
[.5]DirectorsDuties and ResponsibilityCorrection of Known Problems
In the Matter of * * * (INSURED
The proceeding arises under Section 8(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(b) (1)). On April 7, 1983, the Federal Deposit Insurance Corporation ("FDIC") and ("Proponent") issued a Notice of Charges and of Hearing ("Notice") against * * * ("Bank") and its board of directors (the Bank and its board of directors are collectively referred to as "Respondent") pursuant to the provisions of Section 8(b)(1) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. §1818(b)(1)) and Part 308 of the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). The Notice charged that the Bank and its board of directors engaged in certain unsafe or unsound practices in conducting the business of the Bank within the meaning of Section 8(b)(1) of the Act and called for a hearing to take evidence and determine whether a Cease and Desist Order should be issued requiring the Respondent to terminate such practices and to take affirmative action to correct the conditions resulting from such practices. On April 27, 1983, counsel for the bank filed an Answer to the Notice ("Answer") admitting certain allegations and denying others.
BACKGROUND
Based on a series of examinations, the FDIC alleged that the Respondent engaged in the following unsafe or unsound practices:
As has been previously discussed, the facts in this proceeding are largely undisputed. The basic issue is whether the remedy sought by the FDIC, a Cease and Desist Order, is appropriate given the facts and other relevant circumstances.
DECISION
After a careful review and consideration of the entire record in this proceeding, the FDIC's Board of Directors adopts the ALJ's recommended decision in its entirety with minor modifications, both substantive and procedural in nature.
[.1.2] The need to inject $450,000 in additional capital into the Bank was also supported by substantive evidence in the record. While the other affirmative actions are more short term responses to the Bank's problems, this action is designed to achieve a more long-term resulta significant improvement in the Bank's financial stability. The ultimate feasibility of such an undertaking is not as significant in comparison with the obvious need to attempt such an action. Further, there is no evidence that the FDIC has the responsibility to prove such an action is feasible, although testimony indicated that it could be accomplished in this case. The FDIC has the right to be satisfied that a problem bank has exhausted all methods of correcting its deficiencies. In this instance, the Respondent's reluctance to inject additional capital into the Bank indicates a desire to place the risk of the ultimate success or failure of the Bank on the FDIC insurance fund, rather than on the shareholders, directors and management of the institution. It should be the responsibility of these parties to make every attempt to correct the Bank's problems and the FDIC has the right to expect that such efforts will be undertaken. For these reasons, the FDIC's Board of Directors adopts
{{4-1-90 p.A-212}}the ALJ's findings pertaining to the injection of $450,000 of additional capital.
[.3] While it is likely that the actions (or lack thereof) of the Respondent had an impact on the Bank's condition, the FDIC has not established a causal connection by substantial evidence. The fact that the vast majority of bad loans were originated by prior management, the difficulty in upgrading adversely classified assets due to the depressed regional economy and evidence of efforts made by management to correct the situation, must be considered in determining the culpability for the Bank's condition and tends to rebut FDIC's assertion of mismanagement. In light of this analysis, the focus of this proceeding is more appropriately placed upon correcting the situation rather than determining culpability for its existence.
Findings of Fact
Consistent with the above discussion, the FDIC's Board of Directors adopts the Findings of Fact of the ALJ in their entirety with several modifications. The FDIC's Proposed Finding of Fact paragraph number 7, pertaining to FDIC examinations, shall be incorporated into the Board's findings. It is clear from the record that the results of the FDIC's examinations and the conclusions drawn from them were in accordance with the appropriate standards. The FDIC provided substantial evidence as to the existence and validity of these guidelines which are critical to the conclusions drawn from the results of the examinations. Modifications to the figures in the ALJ's paragraphs number 28 and 29 should be made in accordance with the Respondent's exceptions and Proponent's Exhibit # 1A as discussed below.
Conclusions of Law
The ALJ did not provide any specific conclusions of law in his opinion. Inasmuch as the ALJ supported the FDIC's position, the FDIC's Board of Directors adopts the conclusions of law proposed by the FDIC, omitting paragraph 6 which pertains to mismanagement and is not supported by the Findings of Fact. An analysis of the ALJ's Findings of Fact and subsequent recommendations for affirmative action establishes a nexus for the adoption of the FDIC's Proposed Conclusions of Law as modified.
Order
The ALJ recommended that certain affirmative action be ordered but failed to issue a formal, numbered Order to Cease and Desist. The FDIC's Board of Directors adopts FDIC's Proposed Order to Cease and Desist to the extent that it reflects the recommendations of the ALJ. This results in the deletion of paragraph 1 which pertains to the retention of a new chief lending officer from outside the Bank. Not only is this proposed order unsupported by the Findings of Fact and the Conclusions of Law, as previously discussed, but the issue has been rendered moot as the record indicates that the Respondent has hired a new chief lending officer. Paragraphs 2(c) and 2(d) of FDIC's Proposed Order, which are not specifically included in the ALJ's recommendations, shall be included in the Order as an extension of the ALJ's general recommendation to improve the bank's loan portfolio.1
EXCEPTIONS
Subsequent to the ALJ's recommended decision, both parties submitted exceptions to the findings and conclusions. These
Proponent's Exceptions
The FDIC excepted to the ALJ's failure to find facts requested in paragraph 7 and paragraphs 46-51 of the FDIC's Proposed Findings of Fact.
Respondent's Exceptions
The Respondent filed lengthy exceptions to the ALJ's recommended decision. Without responding to each exception individually, the Respondent's exceptions to the ALJ's Findings of Fact can be categorized as articulating several basic arguments.
FINDINGS OF FACT
1. The Bank is an insured, state-chartered bank which is subject to the Federal Deposit Insurance Act and the Rules and Regulations of the FDIC.
1. The FDIC has legal jurisdiction and authority to issue an Order to Cease and Desist against the Bank under Section 8(b)(1) of the Act.
[.4] 2. The Bank has engaged in an unsafe or unsound practice within the meaning of Section 8(b)(1) of the Act by maintaining an excessive and disproportionately large volume of inferior quality assets in relation to the total capital and reserves of the Bank.
[.5] 6. The Board of Directors of the Bank had the legal duty and responsibility to take effective action to correct any problems or deficiencies in the operation of the Bank that have had a negative impact on the Bank's earnings and the quality of the Bank's assets, and which have caused a continued erosion of the Bank's capital and reserves, regardless of the time or date on which such problems or deficiencies may have originated.
ORDER TO CEASE AND DESIST
IT IS HEREBY ORDERED, that * * * its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank, CEASE AND DESIST from the following unsafe or unsound banking practices.
/s/ Hoyle L. Robinson
Case FDIC-83-79b)
Before: JOHN H. FENTON,
RECOMMENDED DECISION
This proceeding arises under Section 8(b)(1) of the Federal Deposit Insurance Corporation Act (12 U.S.C. 1818(b)(1). FDIC issued a Notice of Charges and of Hearing on April 7, 1983, pursuant to the provisions of Section 8(b)(1) and its Rules of Practice and Procedures (12 C.F.R. 308), alleging that the Bank and its Board of Directors (herein collectively called the Bank) had engaged in certain unsafe or unsound practices, and calling for a hearing to take evidence and determine whether a Cease and Desist Order should issue requiring the Respondent to end such practices and to take affirmative action to correct the conditions resulting from such practices.
Preliminary Statement
Background
FDIC, in essence, alleges that the Branch has engaged in the following unsafe or unsound practices:
Findings of Fact
1. The Bank is an insured, state-chartered bank which is subject to the Federal Deposit Insurance Act and the Rules and Regulations of the FDIC.
Conclusions
For the reasons given in the preliminary statement, I have great difficulty in concluding, merely from the failure of the Board of Directors to abate or reverse these obviously adverse trends, that mismanagement and the need for a new chief lending officer are thereby established.3However, the request for a new lending officer is probably mooted, given attorney * * * representation that * * * has resigned, and that a new officer will be recruited. In any event, I decline on this record to recommend a finding that the loan officer has failed to discharge his responsibilities prudently, or an order that he be replaced by an outsider.
/s/ John H. Fenton |
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Last Updated 6/6/2003 | legal@fdic.gov |