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FDIC Enforcement Decisions and Orders

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{{4-1-90 p.A-840}}
   [5065] FDIC Docket No. FDIC-85-165k (6-3-86).

   FDIC assessed civil money penalties against bank directors who received extensions of credit from the bank in excess of 15% of the bank's unimpaired capital and surplus in the form of unsecured loans, and in excess of 10% of the bank's unimpaired capital and surplus in the form of fully secured loans.

   [.1] Practice and Procedure—Petitions to FDIC—Time For Filing Exceptions to Recommended Decision—Time of Filing

   Exceptions to an ALJ's Recommended Decision must be filed within 20 days after the ALJ files the Recommended Decision. Failure to file exceptions within 20 days waives any objections a party might have.
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   [.2] Regulation O—Lending Limitations—Generally
   The legal lending limit protects the safety and soundness of banks by restricting the effect of default by any individual borrower.

   [.3] Certificates of Deposit—Loan Security
   In order for a certificate of deposit to secure a loan, the certificate must be held by the bank pursuant to a written agreement establishing the security interest under state law. The mere right to set-off is insufficient.

   [.4] Civil Money Penalties—Burden of Proof
   In an action for the imposition of civil money penalties, the FDIC has the burden of proving and otherwise establishing violations of law by a preponderance of the evidence, not by clear and convincing evidence.

   [.5] Civil Money Penalties—Liability—Lending Limitations
   The maximum amount of unsecured credit that may be extended by a bank to executive officers and principal shareholders and their related interests, is an amount equal to 15% of the bank's unimpaired capital and surplus.

   [.6] Civil Money Penalties—Liability—Lending Limitations
   The maximum amount of secured credit that may be extended by a bank to executive officers and principal shareholders and their related interests, is an amount equal to 10% of the bank's unimpaired capital and surplus.

   [.7] Civil Money Penalties—Liability—Lending Limitations
   An extension of credit to an executive officer or principal shareholder of a bank includes any loan or other extension of credit made by a bank to a third party for which the officer or principal shareholder is obligated as endorser or guarantor.

   [.8] Loans—Renewal
   An extension of credit to a bank director includes the renewal of a loan or other extension of credit previously made by the bank to the director or a related interest of the director.

   [.9] Regulation O—Definitions—Extension of Credit
   An extension of credit to a bank director includes the renewal of a loan or other extension of credit previously made by the bank to a third party for which the director is obligated as endorser or guarantor.

   [.10] Loans—Collateral—Real Property
   Loans or other extensions of credit made by a bank to a bank director or to his related interests which are secured by real property or unlisted securities, are not "secured" and must conform to the 15% unsecured lending limit.

   [.11] Regulation O—Lending Limitations—Unsecured Loans
   Loans or other extensions of credit made by a bank to a director or his related interests are not "secured" and must confirm to the 15% unsecured lending limit, if the property or collateral of the borrower held by the bank is held for safekeeping only.

   [.12] Civil Money Penalties—FDIC Authority to Assess
   The FDIC has the authority to impose civil money penalties for violations of the legal lending limit.

   [.13] Definitions—Executive Officer
   An executive officer of a company or bank means a person who participates or has authority to participate in major policy making functions of the company or bank.

   [.14] Definitions—Principal Shareholder
   A principal shareholder is an individual or a company that directly or indirectly, or acting through or in concern with one or more persons, owns, controls, or has the power to vote more than 10% of any class of voting securities of a member bank or company.
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   [.15] Directors—Duties and Responsibilities—Supervision of Bank's Affairs
   Bank directors have the duty of maintaining reasonable supervision and direction over the activities and affairs of the bank.

   [.16] Directors—Duties and Responsibilities—Delegation to Officers
   Directors of a bank are negligent if they leave the management of a corporation entirely up to others. Directors may be held liable for the breaches of trust by officers to whom management is entrusted, and reliance on their apparent trustworthiness does not afford an escape from such liability.

   [.17] Directors—Duties and Responsibilities—Correction of Known Problems
   The failure to heed notices and warnings of mismanagement and to take corrective action after knowledge of such mismanagement is a breach of fiduciary duty for which directors are accountable.

   [.18] Civil Money Penalties—Hearing
   Any person charged with a violation of law or regulation for which a civil money penalty may be imposed is entitled to an "agency hearing" on a request made within 10 days after issuance of the notice of assessment.

   [.19] Practice and Procedure—Evidence—Expertise of Administrative Agencies
   Courts defer to the expertise of administrative agencies in formulating a remedy, such as an order requiring the payment of a civil money penalty, to effectuate the purpose and intent of the enabling statute.

   [.20] Loans—Secured—Perfection of Security Interest
   Depending on the type of personal property involved, perfection of a security interest under the Uniform Commercial Code is achieved one of three ways: (a) perfection by possession; (b) automatic perfection; and (c) perfection by filing.

   [.21] Loans—Secured—Perfection of Security Interest
   A security interest in "instruments" can be perfected only by possession.

   [.22] Loans—Setoff—Requirements for Exercise
   Certain requirements must be present before setoff may be exercised: funds deposited in the bank must be owned by the depositor; the deposit must create a valid debtor-creditor relationship between the bank and depositor; there must be a mutuality of indebtedness between the bank and the depositor; and the debt of the depositor to the bank must be in default or otherwise due and owing.

   [.23] Civil Money Penalties—Amount of Penalty—Statutory Standard
   In determining the amount of a civil money penalty, the FDIC shall take into account the appropriateness of the penalty with respect to the size of the financial resources and good faith of the insured bank or person charged, the gravity of the violation, the history of previous violations, and such other matters as justice may require.

In the Matter of * * * * * * individually
and as officers and/or directors, principal
shareholders and persons participating in
the conduct of the affairs of * * * BANK
(INSURED STATE NONMEMBER BANK)


DECISION AND ORDER TO PAY
FDIC-85-165k

STATEMENT OF THE CASE
   These proceedings arise under section 18(j)(3) of the Federal Deposit Insurance Act (the "Act"), 12 U.S.C. § 1828(j)(3). On May 29, 1985, the Board of Review of the Federal Deposit Insurance Corporation (the "FDIC"), issued a written Notice of Assessment of Civil Money Penalty, Findings of Fact, and Conclusions of Law, Notice of Hearing and Order to Pay ("Notice") against * * * ("Respondent"), individually and as an executive officer, director and principal shareholder of * * * Bank, * * * (the "Bank"), and a similar Notice against * * * ("Respondent"), individually and on a director and principal shareholder of the Bank, pursuant to section 18(j)(3) of the Act. The Notices charged Respondents * * * and * * * with violations of section 22(h) of the Federal Reserve Act, as amend- {{4-1-90 p.A-843}}ed, 12 U.S.C. § 375b, and Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 215 ("Regulation O") promulgated thereunder, and made to apply to insured State nonmember banks by section 18 (j)(2) of the Act, 12 U.S.C. § 1828(j)(2), and section 337.3 of the FDIC's Rules and Regulations, 12 C.F.R. § 337.3. The Notices sought civil money penalties against Respondent * * * in the amount of $30,800.00 and against Respondent * * * in the amount of $14,800.00.
   A formal hearing was conducted by Administrative Law Judge Paul S. Cross (the "ALJ") on October 22-24, 1985. Both Respondents and the FDIC Compliance and Enforcement Section ("FDIC-C&E") were afforded an opportunity to submit to the ALJ proposed Findings of Fact, Conclusions of Law, briefs and responses to papers filed by the other party. The ALJ issued his Recommended Decision and Order ("RD") on February 26, 1986, recommending civil money penalties in the amounts proposed by FDIC-C&E.
Respondents Have Waived Their Opportunity to Object to the ALJ's Recommended Decision

   [.1] Neither FDIC-C&E nor the Bank filed any exceptions to the ALJ's proposed Findings of Facts, Conclusions of Law or Recommended Decision and Order. Such exceptions are required by the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.14(a), if a party's objections are to be preserved. Under the FDIC Rules of Practice and Procedures, if no exceptions are filed within 20 days after the ALJ issues his Recommended Decision, the parties are deemed to have waived any objections they might have had. 12 C.F.R. § 308.14(b). Since Respondents failed to file exceptions, any objections Respondents may have had to the ALJ's findings and recommendations have been waived.
   Although the Respondents' failure to file exceptions is itself a sufficient ground for the Board of Directors (the "Board") to adopt the ALJ's Recommended Decision and Order, the Board, in its discretion, has determined to address the merits of the arguments raised by Respondents below.
Regulation O
   Regulation O establishes aggregate lending limits on the amount of credit that can be extended to bank executive officers, directors, and principal shareholders and their related interests. Each borrower is limited to credit equal to 15 percent of the bank's unimpaired capital and surplus in the case of loans that are not fully secured, and an additional 10 percent of the bank's unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the loan. 12 C.F.R. §§ 215.2(f), 215.4(c).

   [.2] These limits are not mere technicalities. They go to the heart of sound banking and safeguard against insider abuse. The longstanding restraint on the total percentage of a bank's assets that may be loaned to any borrower is one of the most well-known statutory provisions governing bank lending activities. Corsicana Nat'l Bank v. Johnson, 251 U.S. 68 (1919). This limit is of the utmost importance because it protects the safety and soundness of banks by restricting the impact of default by any individual borrower.
Unlawful Extensions of Credit
   The Board finds that the ALJ's recommended Findings of Fact are supported by the evidence of record. The Board therefore adopts and incorporates herein by reference the Findings of Fact on pages 5 through 19 of the RD. The Board also agrees with the Conclusions of Law set forth by the ALJ. The Board finds the Conclusions of Law to be supported both by statute and established precedent. The Board therefore adopts and incorporates herein by reference the ALJ's Conclusions of Law set forth on pages 20-24 of the RD.
   Respondent * * *
   Between February 1, 1983, and August 15, 1985, the total outstanding credit extended to Respondent * * * and his related interests continuously exceeded 25 percent of the unimpaired capital and surplus of the Bank. (RD at 16.) Regulation O does not permit fully secured extensions of credit to exceed 25 percent of the unimpaired capital and surplus of the Bank. 12 C.F.R. § 215.4(c). The record contains evidence of {{4-1-90 p.A-844}}36 separate direct or indirect extensions of credit to Respondent * * * or his related interests which are violations of Regulation O. (RD at 5-16.) At most times the amount of the violations was close to $2 million. The record also contains detailed evidence of examination reports and other specific cautions and warnings about the violations to the directors by FDIC examiners. (RD at 46.)
   In his defense, Respondent * * * argued that a $2,625,000 loan to * * * was not an "extension of credit." He also argued that it was not properly aggregated with his other debts as a "related interest." Neither argument has merit.
   On March 4, 1983, the * * * issued an "industrial revenue bond" in the principal amount of $2,625,000 in exchange for a like sum from the Bank, and the obligation was repayable to the Bank over a period of 19 years in graduated monthly payments of principal and interest. (RD at 48.) Respondent * * * guaranteed the debt and stipulated to the fact that the proceeds of the credit were used for the tangible benefit of * * *, an admittedly related interest of Respondent * * * (RD at 48.)
   This credit is clearly an "extension of credit" within the meaning of Regulation O, 12 C.F.R. §215.3. This credit is also clearly a related interest within the meaning of Regulation O, 12 C.F.R. § 215.2(k), which was properly aggregated with other * * * credits subject to the lending limit. Even the Bank's board minutes identify it as an "insider transaction" and a "loan." (RD at 50.) As the ALJ concluded, it cannot be characterized as an "investment" by the Bank. (RD at 49.) It was properly aggregated with Respondent * * * other extensions of credit for the purpose of determining whether there were violations of Regulation O.
   Respondent * * *
   Between June 18, 1984, and November 14, 1984, the total outstanding credit extended to Respondent * * * and his related interests continuously exceeded 15 percent of the unimpaired capital and surplus of the Bank. Regulation O does not permit unsecured extensions of credit to exceed 15 percent of the unimpaired capital and surplus of the Bank. 12 C.F.R. §§ 215.2(f), 215.4(c). The record contains evidence of 17 separate direct or indirect extensions of credit to Respondent * * * or his related interests which are violations of Regulation O. (RD at 16-19.) Respondent * * *, like Respondent * * *, challenged the aggregation of his loans with those of his related interests. In particular Mr. * * * contends that * * * is not a "related interest" within the meaning of section 215.2(k) of Regulation O. It was not disputed that * * * and * * * each own 20 percent of the outstanding voting stock of * * * and that both are directors. Mr. * * * also holds the office of corporate secretary.
   The Board finds that extensions of credit to * * * were properly aggregated with other * * * credits to determine the lending limit under Regulation O. FDIC-C&E relied upon a presumption in Section 215.2(b)(2) to establish Mr. * * * control of * * *. That Section establishes the presumption that, where a person owns more than 10 percent of the stock of a company and is also a director of that company, the company is controlled by that person and is a related interest for purposes of Regulation O.
   Regulation O further permits rebuttal of the presumption if a person submits to the FDIC written materials that, in the agency's judgment, demonstrate an absence of control. The only evidence presented by Mr. * * * on this point was his own testimony that he was not involved in * * *'s active management or borrowing. The ALJ was not persuaded that this this testimony constituted adequate rebuttal of the presumption. He concluded that: "* * * clearly was under [Respondent * * *'] shared dominion, importantly for the purpose of opting for a loan from the Bank." (RD at 65.) The Board agrees with the ALJ's conclusion.

   [.3] Mr. * * * also contended that the * * * credits were legally secured by certificates of deposit and therefore subject to the 25 percent lending limit.1 The ALJ analyzed the requirements to establish a security interest for the Bank and found the * * * credits were not secured within the meaning
   


1 As discussed above, Regulation establishes two lending limits on extensions of credit to executive officers, directors and principal shareholders. The lending limit is 15 percent of the bank's unimpaired capital and unimpaired surplus in the case of loans that are not fully secured, and an additional 10 percent of the bank's unimpaired capital and unimpaired surplus in the case of loans that are fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the loan. 12 C.F.R. § 215.2(f).
{{4-1-90 p.A-845}}of Regulation O. (RD at 76.) The Board agrees. In order for the certificates of deposit to secure the * * * loans, the certificates must be held by the Bank pursuant to a written agreement establishing the security interest under state law. The mere right to a set-off is insufficient. Nor did Respondents establish that the * * * stock or real estate constituted readily marketable collateral. (RD at 78-79.) The Board agrees with the ALJ's conclusions. * * * credits were properly aggregated with other * * * credits. These extensions of credit exceeded the 15 percent limit of allowable credits to Mr. * * * and his related interests.

ORDER TO PAY
   Having found that Respondents * * * and * * * engaged in violations of Regulation O as set forth in the ALJ's Recommended Decision, and adopted above, the Board finds the following ORDERS TO PAY are appropriate as civil money penalties and as deterrents against future abuses.
   After taking into account the appropriateness of the penalty with respect to the financial resources and the good faith of each Respondent, the gravity of these violations, the history of previous violations, and all of the circumstances, it is therefore:
   ORDERED, that by reason of the violations found herein, a penalty of $30,800 be, and hereby is, assessed against Respondent * * * pursuant to section 18(j)(3) of the Act. 12 U.S.C. § 1828(j)(3).
   IT IS FURTHER ORDERED, that by reason of the violations found herein, a penalty of $14,800 be, and hereby is, assessed against Respondent * * * pursuant to section 18(j)(3) of the Act. 12 U.S.C. § 1828(j)(3).
   It is FURTHER ORDERED that the penalties hereby ordered shall not be paid directly or indirectly by * * * Bank, but shall be paid by Respondents * * * and * * *.
   It is FURTHER ORDERED that each penalty assessed shall be payable and collected not later than 20 days from the date this ORDER becomes final and unappealable.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 3rd day of June, 1986.
   /s/ Hoyle L. Robinson
   Executive Secretary

RECOMMENDED DECISION AND ORDER

FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON D.C.
FDIC 85-165K(1)
FDIC 85-165K(2)
[Consolidated Action]
BY ADMINISTRATIVE LAW JUDGE
PAUL S. CROSS
* * *
for Federal Deposit Insurance Corporation * * * for Respondents
Civil Money Penalties found to be warranted.

I. SUMMARY OF PROCEEDINGS
   This action was initiated by the Federal Deposit Insurance Corporation ("FDIC") on June 5, 1985 when the FDIC Board of Directors issued Notices of Assessment of Civil Money Penalty, Findings of Fact and Conclusions of Law, and Orders to Pay ("Notices") against * * * and * * * ("Respondents") pursuant to section 18(j)(3) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. § 1828(j)(3)) and Part 308 of the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). The Notices issued against Respondents * * * and * * * [FDIC 85-165k(1) and FDIC 85-165K(2)] were based upon the findings of FDIC examinations of * * * Bank, * * * ("Bank") conducted as of September 23, 1983 and October 12, 1984, and charged Respondents * * * and * * * with having committed and/or participated in certain violations of the lending limit prohibitions of section 22(h) of the Federal Reserve Act (12 U.S.C. § 375b) and its implementing Regulation O (12 C.F.R. Part 215) which are made applicable to the Bank and Respondents pursuant to section 18(j)(2) of the Act (12 U.S.C. § 1828(j)(2)).
   Orders to Pay were incorporated in the Notices requiring Respondents * * * and * * * to pay specified civil money penalties within sixty (60) days of the issuance of the Notices unless timely written requests were made for a hearing regarding the violations of law and regulation alleged in the Notices.
{{4-1-90 p.A-846}}Respondent * * * was ordered to pay a civil money penalty of $30,800, and Respondent * * * was ordered to pay a civil money penalty of $14,800. Respondents * * * and * * * filed Answers to the Notices ("Answers") on June 25 and 26, 1985, respectively, wherein the alleged violations of law and regulation were denied generally and a request was made for a formal hearing regarding such alleged violations. The Answers of Respondents * * * and * * * were filed by * * *, counsel pro se and for Respondent * * *.
   On July 17, 1985 this Administrative Law Judge ("ALJ") was appointed to preside at a formal hearing, which was tentatively scheduled to commence on August 9, 1985, regarding the violations of law and regulation alleged in the Notices and to issue a Recommended Decision to the FDIC Board of Directors regarding such violations and the assessment of civil money penalties against Respondents * * * and * * *. Upon motion filed by Respondents * * * and * * * on August 5, 1985 requesting a continuance of the hearing date, the ALJ issued an order on August 8, 1985 granting a continuance of the hearing until October 15, 1985 and setting a prehearing conference on October 9, 1985 in * * *. On August 21, 1985, the ALJ issued an order rescheduling the hearing date for October 22, 1985.
   On October 9, 1985, the previously scheduled prehearing conference was convened in * * * for the purpose of identifying and narrowing the issues in dispute, limiting discovery, and establishing certain procedural guidelines for the conduct of the hearing. The prehearing conference was transcribed and is reflected in a transcript ("Conf. Tr. ____") consisting of 44 pages. It was agreed by counsel for FDIC and Respondents that Respondent * * * would not offer his sworn testimony on behalf of Respondent * * *, but that the offer of his testimony would be limited to his own defense (Conf.Tr. 4–5); that the actions against Respondents * * * and * * * would be consolidated for purposes of hearing and a Recommended Decision of the ALJ (Conf.Tr. 6–7); that prior to hearing, FDIC would submit and Respondents would reply to a Request for Admissions pursuant to Rule 36 of the Federal Rules of Civil Procedure (Conf.Tr. 8–13); that certain abbreviated procedures would be utilized regarding the introduction of documentary evidence (Conf.Tr. 18–22); that discovery would be limited and completed prior to hearing (Conf. Tr. 22–27); that the FDIC and Respondents would exchange premarked exhibits and witness lists prior to hearing (Conf.Tr. 28–34); and that the ALJ would take judicial notice of certain statutes and regulations applicable to this proceeding (Conf.Tr. 35–37).
   On October 12, 1985, FDIC filed Proposed Prehearing Findings and Request for Admissions consisting of 270 separate statements of fact regarding the allegations contained in the Notices. On October 17, 1985, Respondents filed Responses to the FDIC Prehearing Findings and Request for Admissions ("Rs.Adm. ____") wherein certain FDIC requests for admissions were denied and others were admitted. Factual matters pertaining to the jurisdiction of FDIC over Respondents; the positions held by Respondents in the Bank; the amount of the Bank's unimpaired capital and surplus on certain specified dates; the amounts and dates of certain specified loan transactions involving the Respondents; and the occurrence and nature of certain supervisory meetings between the Respondents and FDIC representatives regarding alleged violations of law involving Respondents were admitted. All other requests for admissions by FDIC were denied by Respondents.
   A formal hearing was commenced in * * * on October 22, 1985 and concluded on October 24, 1985. During the course of the hearing, sworn testimony was received from 10 witnesses, five of whom testified on behalf of FDIC with an equal number testifying on behalf of Respondents. The hearing record includes the following: a transcript ("Tr. ____") consisting of 560 pages; a total of 78 documentary exhibits offered by FDIC ("Pr.Ex. ____ / ____") consisting of 1,137 pages; and a total of 5 documentary exhibits offered by Respondents ("Rs.Ex. ____ / ____") consisting of 44 pages. In view of the number and volume of FDIC exhibits in the record, there is appended a descriptive index of FDIC exhibits (Appendix A) and cross-indexes of FDIC exhibits to FDIC witnesses who testified regarding the content of such exhibits (Appendixes B and C).
   It is important to note that the record of this action also includes the Request for Admissions filed by FDIC (consisting of 52 pages) and Respondents' Response to the FDIC Request for Admissions (consisting {{4-1-90 p.A-847}}of 17 pages) which were offered and received as supplemental amended pleadings to the Notices and Answers (Tr. 6). Because of the detail and comprehensive nature of the supplemental pleadings, the original Notices and Answers have been effectively superseded. Accordingly, virtually all of the evidence and testimony in the record of this action is focused on such supplemental pleadings.
   Initial and supplemental briefs were filed by the parties. This decision closely adheres to the opening brief of the FDIC dated January 31, 1986.

II. FINDING OF FACT
   The FDIC submits proposed Findings of Fact as enumerated below which are adopted as part of this Decision. The findings are grouped into three categories: (1) General findings pertaining to the actions against both Respondents * * * and * * *, (2) findings pertaining solely to the action against Respondent * * *, and (3) findings pertaining solely to the action against Respondent * * *. For purposes of convenient reference, findings in all three categories have been numbered sequentially and are not listed chronologically, except within each category. Accordingly, in order to summarize all of the significant events reflected in the findings in the order of their occurrence, a composite chronological listing of such events has been appended with supporting cross-references to the evidence and testimony in the record (Appendix D).

A. GENERAL FINDINGS OF FACT

   1. At all times pertinent to this proceeding, the Bank was a commercial bank organized and chartered under the laws of the State of * * *; and the Bank was (and is) insured by the FDIC, but is not a member of the Federal Reserve System. (Answers 1(a); RS.Adm. 1)
   2. On September 23, 1983, the Bank was examined by the FDIC ("1983 FDIC examination") for the purpose, inter alia, of determining whether loans and other extensions of credit of the Bank were made in compliance with applicable laws and regulations, including section 22(h) of the Federal Reserve Act (12 U.S.C. § 375b) and Regulation O (12 C.F.R. Part 215). (* * * Tr. 23–25, 39–40, 42–45; Pr.Ex. 32A)
   3. The 1983 FDIC examination disregard determined that the Bank had made numerous extensions of credit to Respondent * * * and/or his related interest, * * * that were in apparent violation of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)). (* * * Tr. 39–40, Pr.Ex. 32A)
   4. The 1983 FDIC examination of the Bank formally notified Respondents * * * and * * *, in their capacities as directors and persons participating in the affairs of the Bank, that the FDIC might impose civil money penalties for the alleged violations of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)) by Respondent * * * that were scheduled in such report, particularly if such violations were not corrected and continued to occur in the future. (* * * Tr. 41–42; Pr.Ex. 32A)
   5. On October 25, 1983, senior representatives of the FDIC and * * * State Department of Banking and Finance met with the board of directors of the Bank, including Respondents * * * and * * * and discussed the findings of the 1983 FDIC examination of the Bank in detail, including numerous alleged violations of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)) by Respondent * * *. (* * *, Tr. 42–45; * * * Tr. 314–318; * * *, Tr. 537–538; Pr.Ex. 32B; Pr.Ex. 34)
   6. At the October 25, 1983 supervisory meeting with the board of directors of the Bank, FDIC representatives further discussed the requirements and prohibitions of Regulation O, indicating further that civil money penalties might be assessed by the FDIC for such violations and that it was necessary that the board of directors of the Bank adopt specific procedures to prevent future violations of Regulation O. (* * *, Tr. 314–319; Pr.Ex. 34)
   7. At the October 25, 1983 supervisory meeting with the board of directors of the Bank, FDIC representatives asked that the board of directors enter into a formal supervisory agreement with the FDIC ("Memorandum of Understanding") requiring, inter alia, that specific procedures by adopted to ensure future compliance with all laws and regulations administered by the FDIC, including the requirements and prohibitions of Regulation O. (* * *, Tr. 314-319; Pr.Ex. 34)
   8. On November 22, 1983, the FDIC * * * Regional Director gave further formal written notice to the board of directors of the Bank, including Respondents * * * {{4-1-90 p.A-848}}and * * *, regarding the violations of Regulation O by Respondent * * * scheduled in the 1983 FDIC report of examination of the Bank. (* * *, Tr. 211–212; * * *, Tr. 106–108; * * *, Tr. 318–320; Pr.Ex. 37A)
   9. The formal written notice of the FDIC * * * Regional Director on November 22, 1983 to the directors of the Bank, including Respondents * * * and * * *, advised that the FDIC considered the assessment of civil money penalties for the violations of Regulation O scheduled in the 1983 FDIC report of examination of the Bank, but indicated that such action would not be pursued by the FDIC provided that the board of directors of the Bank initiated immediate measures to correct the violations scheduled in such report and adopted specific policies and procedures designed to preclude recurrence of such violations in the future. (* * *, Tr. 211–212; * * *, Tr. 106–108; * * *, Tr. 318–320; Pr.Ex. 37A)
   10. The formal written notice to the directors of the Bank from the FDIC * * * Regional Director on November 22, 1983 further requested that the board of directors of the Bank, including Respondents * * * and * * *, adopt a written resolution indicating their intent to comply with the conditions set forth in such notice and to provide a description of the procedures that will be adopted by the Bank to prevent a recurrence of future violations of Regulation O. (* * * Tr. 211–212; * * *, Tr. 106–108; * * *, Tr. 318–320; Pr.Ex. 37A)
   11. On January 16, 1984, the board of directors of the Bank, including Respondents * * * and * * *, entered into a Memorandum of Understanding with the FDIC * * * Regional Director wherein the board of directors of the Bank agreed, inter alia, to take all necessary measures to correct the violations of Regulation O by Respondent * * * scheduled in the 1983 FDIC report of examination of the Bank. (* * *, Tr. 106–108; * * *, Tr. 202–204; * * *, Tr. 317–324, 368; Pr.Ex. 46)
   12. The January 16, 1984 Memorandum of Understanding between the directors of the Bank and the FDIC * * * Regional Director further required that the Bank adopt a revised loan policy which contained "specific policies governing loans to executive officers and directors" of the Bank designed to prevent the recurrence of violations of Regulation O. (* * *, Tr. 317–324, 368; Pr.Ex. 46)
   13. On February 29, 1984, the Bank was examined by the * * * Department of Banking and Finance ("1984 * * * State examination") for the purpose, inter alia, of determining whether loans and other extensions of credit of the Bank were made in compliance with applicable laws and regulations, including section 22(h) of the Federal Reserve Act (12 U.S.C. § 375b) and Regulation O (12 C.F.R. Part 215). (* * *, Tr. 61–78; * * *, Tr. 110; Pr.Ex. 3A)
   14. The 1984 * * * State examination of the Bank determined that the Bank had made numerous extensions of credit to Respondents * * * and * * * and/or their related interest (* * *) that were in apparent violation of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)). (* * *, Tr. 61-78; * * *, Tr. 110; Pr.Ex. 3A)
   15. On April 20, 1984, the FDIC made a follow up request to the board of directors of the Bank, including Respondents * * * and * * * to the written notice and request of the FDIC * * * Regional Director of November 22, 1983 that the board of directors of the Bank adopt a resolution indicating the intention and resolve of the directors of the Bank to adopt procedures specifically designed to prevent future violations of Regulation O. (* * *, Tr. 107-108, 158-160; Pr.Ex. 37B)
   16. On May 9, 1984, senior representatives of the FDIC and * * * State Department of Banking and Finance met with the board of directors of the Bank, including Respondents * * * and * * *, and expressed serious supervisory concerns regarding numerous apparent violations of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)) by Respondents * * * and * * * that were scheduled in the 1984 * * * State examination of the Bank, noting further that the same type of violation by Respondent * * * had been the subject of prior supervisory criticisms incidental to previous FDIC and * * * State examinations of the Bank. (* * *, Tr. 61–78, 101–102; * * *, Tr. 110–117; * * *, Tr. 324–326; * * *, Tr. 540; Pr.Ex. 53)
   17. At the supervisory meeting on May 9, 1984, FDIC representatives notified the board of directors of the Bank, including Respondents * * * and * * * that continued violations of Regulation O would result in a possible recommendation by the FDIC * * * Regional Director for the imposition of civil money penalties by the FDIC, and {{4-1-90 p.A-849}}specifically urged that the board of directors take immediate action to adopt specific procedures to ensure that additional violations of Regulation O did not occur in the future. (* * *, Tr. 61–78; 101–102; * * *, Tr. 110–117; * * *, Tr. 324–326; * * *, Tr. 540; Pr.Ex. 53)
   18. At the supervisory meeting with the board of directors of the Bank on May 9, 1984, representatives of the FDIC and * * * State Department of Banking and Finance were given assurances by the directors of the Bank, including Respondents * * * and * * *, that appropriate measures would be undertaken to prevent future violations of Regulation O, and that such assurances would be reflected in a formal resolution of the board of directors of the Bank. (* * *, Tr. 61–78; 101–102; * * *, Tr. 110–117; * * *, Tr. 324–326; * * *, Tr. 540; Pr.Ex. 53)
   19. On May 17, 1984, the board of directors of the Bank, including Respondents * * * and * * * adopted a written resolution wherein it was resolved that specific procedures would be established to comply with all laws and regulations administered by the FDIC, including the provisions of Regulation O. (* * *, Tr. 108–109, 121, 158–160; * * *, Tr. 211–212; * * *, Tr. 326; * * *, Tr. 493–495; * * *, Tr. 539–546; Pr.Ex. 54)
   20. On October 12, 1984, the Bank was examined by the FDIC ("1984 FDIC examination") for the purpose, inter alia, of determining whether loans and other extensions of credit of the Bank were made in compliance with applicable laws and regulations, including section 22(h) of the Federal Reserve Act (12 U.S.C. § 375b) and Regulation O (12 C.F.R. Part 215). (* * * Tr. 169–228, 310–311; * * *, Tr. 491–493; Pr.Ex. 62A)
   21. The 1984 FDIC examination of the Bank determined that the Bank had made numerous additional extensions of credit to Respondents * * * and * * * and/or their related interests (* * * and * * *) that were in apparent violation of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)). (* * *, Tr. 169–228, 310–311; * * *, Tr. 491–493; Pr.Ex. 62A)
   22. The 1984 FDIC examination of the Bank formally notified Respondents * * * and * * *, in their capacities as directors and persons participating in the affairs of the Bank, that the FDIC might impose civil money penalties for the alleged violations of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)) by Respondents * * * and * * * that were scheduled in such report, particularly if such violations were not corrected and continued to occur in the future. (* * *, Tr. 169–228, 310–311; * * *, Tr. 491–493; Pr.Ex. 62A)
   23. On November 5, 1984, FDIC examiners conducted a special meeting with Respondents * * * and * * * for the purpose of discussing the results of the 1984 FDIC examination of the Bank, including the numerous extensions of credit made by the Bank to Respondents * * * and * * * and/or their related interests in apparent violation of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)). (* * *, Tr. 228–246, 259; * * *, Tr. 453–455, 472, 489; * * *, Tr. 546–548)
   24. At the November 5, 1984 special meeting with FDIC examiners, Respondents * * * and * * * were fully and specifically advised regarding the nature and circumstances of their alleged violations of Regulation O, and they were further notified that such violations were considered extremely serious in view of repeated prior supervisory criticisms regarding the same type of violation of law by Respondents * * * and * * * that had been cited in previous FDIC and * * * State reports of examination of the Bank. (* * * Tr. 228–246, 259; * * *, Tr. 453–455, 472, 489; * * *, Tr. 546–548)
   B. Findings of Fact - Respondent * * *
   25. As of February 1, 1983, the Bank had extended a total aggregate of direct and indirect credit to Respondent * * * and * * *, * * *, in the amount of $901,188 as of the same date, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * exceeded 25 percent of the unimpaired capital and surplus of the Bank by $405,888. (* * *, Tr. 171–172, 182, 310–311; Pr.Ex. 63/1(ln.7); Pr.Ex. 26)
   26. On March 4, 1983, the Bank extended indirect credit to Respondent * * * in the amount of $2,625,000 by making a new loan to the * * * in the amount of $2,625,000 which was fully guaranteed by Respondent * * * and the proceeds of which loan were paid for the tangible economic benefit of * * *; as of the same date {{4-1-90 p.A-850}}and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,526,188 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $2,700,688. (* * *, Tr. 171, 182, 291, 310–311; * * *, Tr. 27–32, 44–45; * * *, Tr. 69–70; * * *, Tr. 131, 142; * * *, Tr. 425–428; * * *, Tr. 434, 517–522; Pr.Ex. 63/1(ln.8); Pr.Ex. 27A)
   27. On March 31, 1983 the Bank extended indirect credit to Respondent * * * in the amount of $52,805 by renewing a prior loan to * * * in the amount of $46,000 accrued interest which was guaranteed by Respondent * * * in the amount of $52,805; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,177,091 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $2,351,591. (* * * Tr. 171, 183, 310–311; * * *, Tr. 38–39; Pr.Ex. 63/1(ln.10); Pr.Ex. 28/1-3; Pr.Ex. 26/1-2)
   28. On April 28, 1983, the Bank extended direct credit to Respondent * * * in the amount of $45,000 by renewing a prior loan to Respondent * * * in the amount of $45,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,007,091 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $2,181,091. (* * * Tr. 171, 310–311; * * * Stipulation, Tr. 165–167; Pr.Ex. 63/1(ln.12); Pr.Ex. 29/1-3; Pr.Ex. 26/20-21)
   29. On May 13, 1983, the Bank extended direct credit to Respondent * * * in the amount of $140,000 by renewing a portion of a prior loan to Respondent * * * in the amount of $140,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $2,827,805 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $2,001,805. (* * *, Tr. 38–41; * * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.16); Pr.Ex. 30/1-3; Pr.Ex. 26/16-17)
   30. On September 14, 1983, the Bank extended direct credit to * * * in the amount of $150,000 by making a new loan to * * * in the amount of $150,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $2,977,805 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $2,131,805. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.17); Pr.Ex. 31/1-2)
   31. On September 27, 1983, the Bank extended indirect credit to Respondent * * * in the amount of $24,305 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $24,305; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and Liberty equaled $2,949,305 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $2,103,305. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.22); Pr.Ex. 33/1-4; Pr.Ex. 28/1-3; Pr.Ex. 26/1-2)
   32. On November 3, 1983, the Bank extended direct credit to Respondent * * * in the amount of $35,000 by making a new loan to Respondent * * * in the amount of $35,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $2,684,305 and exceeded 25 percent of the unimpaired capital) and surplus of the Bank by $1,475,805. (* * * Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.27); Pr.Ex. 35/1-2)
   33. On November 17, 1983, the Bank extended direct credit to Respondent * * * in the amount of $35,000 by making a new loan to Respondent * * * in the amount of $35,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $2,719,305 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,510,805. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.28); Pr.Ex. 36/1-2)
   34. On November 22, 1983, the Bank extended direct credit to Respondent * * * in the amount of $40,000 by making a new loan to Respondent * * * in the amount of $40,000; as of the same date and following {{4-1-90 p.A-851}}such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $2,759,305 and exceeded the 25 percent of the unimpaired capital and surplus of the Bank by $1,550,805. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.32); Pr.Ex. 38/1-2)
   35. On November 30, 1983, the Bank extended direct credit to Respondent * * * in the amount of $60,000 by making a new loan to Respondent * * * in the amount of $60,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $2,819,305 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,610,805. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.33); Pr.Ex. 39/1-2)
   36. On December 1, 1983, the Bank extended indirect credit to Respondent * * * in the amount of $10,000 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $10,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $2,819,305 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,610,805. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.34); Pr.Ex. 40/1-2; Pr.Ex. 26/3-5, 13-A)
   37. On December 28, 1983, the Bank extended direct credit to Respondent * * * in the amount of $180,000 by making a new loan to Respondent * * * in the amount of $180,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $2,999,305 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,790,805. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.35); Pr.Ex. 41/1-2)
   38. On December 30, 1983, the Bank extended direct credit to Respondent * * * in the amount of $140,000 by renewing a prior loan to Respondent * * * in the amount of $140,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $2,999,305 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,790,805. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.36); Pr.Ex.42/1-3; Pr.Ex. 26/16-17)
   39. On December 30, 1983, the Bank also extended direct credit to Respondent * * * in the amount of $30,000 by making a new loan to Respondent * * * in the amount of $30,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,029,305 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,820,805. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.37); Pr.Ex. 43/1-2)
   40. On January 6, 1984, the Bank extended direct credit to Respondent * * * in the amount of $64,673 by making a new loan to Respondent * * * in the amount of $64,673; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,093,978 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,853,728. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.38); Pr.Ex. 44/1-3)
   41. On January 9, 1984, the Bank extended direct credit to Respondent * * * in the amount of $10,000 by making a new loan to * * * which was guaranteed by Respondent * * * in the amount of $10,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,093,978 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,853,728. (* * *, Tr. 171, 183, 310–311; Pr.Ex. 63/1(ln.39); Pr.Ex. 45/1-2; Pr.Ex. 40/1-2; Pr.Ex. 26/35, 13-A)
   42. On February 1, 1984, the Bank extended direct credit to Respondent * * * in the amount of $40,000 by making a new loan to Respondent * * * in the amount of $40,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respon- {{4-1-90 p.A-852}}dent * * * and * * * equaled $3,133,978 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,893,728. (* * *, Tr. 171, 183-184, 203, 310–311; Pr.Ex. 63/2(ln.42); Pr.Ex. 47/1-2)
   43. On March 14, 1984, the Bank extended direct credit to * * * in the amount of $150,000 by renewing a prior loan to * * * in the amount of $150,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,128,275 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,888,025. (* * * Tr. 171, 184, 203, 310–311; Pr.Ex. 63/2(ln.49); Pr.Ex. 48/1-3)
   44. On March 26, 1984, the Bank extended indirect credit to Respondent * * * in the amount of $27,736 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $27,736; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,131,706 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,891,456. (* * *, Tr. 171, 184, 203, 310–311; Pr.Ex. 63/2(ln.50); Pr.Ex. 49/1-3; Pr.Ex. 33/1-4; Pr.Ex. 28/1-3; Pr.Ex. 26/1-2)
   45. On March 27, 1984, the Bank extended indirect credit to Respondent * * * in the amount of $10,000 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $10,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,131,706 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,891,456. (* * *, Tr. 171, 184, 203, 310–311; Pr.Ex. 63/2(ln.51); Pr.Ex. 50/1-2; Pr.Ex. 45/1-2; Pr.Ex. 40/1-2; Pr.Ex. 26/3-5, 13-A)
   46. On May 1, 1984, the Bank extended direct credit to Respondent * * * in the amount of $170,000 by renewing four (4) prior loans to Respondent * * * in the amount of $170,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $3,121,638 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,800,388. (* * *, Tr. 171, 184, 204, 310–311; Pr.Ex. 63/2(ln.58); Pr.Ex. 51/1-6)
   47. On May 4, 1984, the Bank extended direct credit to * * * in the amount of $65,000 by making a new loan to * * * in the amount of $65,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * *, * * * and/or * * * equaled $3,186,638 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,865,388. (* * * Tr. 171, 184–185, 204, 260–263, 269–271, 310–311; * * *, Tr. 346–347, 358; Pr.Ex. 63/2(ln.59); Pr.Ex.52/1-6)
   48. On June 15, 1984, the Bank extended indirect credit to Respondent * * * in the amount of $10,000 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $10,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and/or * * * equaled $3,046,581 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,725,331. (* * *, Tr. 171, 189, 204, 310–311; Pr.Ex. 63/2(ln.69); Pr.Ex. 55/1-2; Pr.Ex. 50/1-2; Pr.Ex. 45/1-2; Pr.Ex. 40/1-2; Pr.Ex. 26/3-5, 13-A)
   49. On June 20, 1984, the Bank extended direct credit to * * * in the amount of $210,000 by making a new loan to * * * in the amount of $210,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and/or * * * equaled $3,251,581 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,930,331. (* * *, Tr. 171, 189–190, 204, 232–237, 244–246, 260–263, 269–271, 289, 290–291, 310–311; * * *, Tr. 346–347, 358; * * *, Tr. 452–458, 478–484; * * *, Tr. 550–551; Pr.Ex. 63/2(ln.71); Pr.Ex. 56/1-2)
   50. On June 25, 1984, the Bank extended indirect credit to Respondent * * * in the amount of $24,736 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $24,736; as of {{4-1-90 p.A-853}}the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and/or * * * equaled $3,248,581 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,927,331. (* * *, Tr. 171, 190, 204, 310–311; Pr.Ex. 63/2(ln.72); Pr.Ex. 57/1-2; Pr.Ex. 49/1-3; Pr.Ex. 28/1-3; Pr.Ex. 26/1-2)
   51. On June 25, 1984, the Bank also extended direct credit to Respondent * * * in the amount of $210,000 by renewing two (2) prior loans to Respondent * * * in the amount of $210,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * *, * * * and/or * * * equaled $3,248,581 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,927,331. (* * *, Tr. 171, 190, 204, 310–311; Pr.Ex. 63/2(ln.73–74); Pr.Ex. 58/1-6)
   52. On August 14, 1984, the Bank extended indirect credit to Respondent * * * in the amount of $10,000 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $10,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * *, * * * and/or * * * equaled $3,243,541 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,815,791. (* * * Tr. 171, 196, 204, 287–288, 310–311; Pr.Ex. 63/2(ln.77); Pr.Ex. 59/1-2; Pr.Ex. 55/1-2; Pr.Ex. 50/1-2; Pr.Ex. 45/1-2; Pr.Ex. 40/1-2; Pr.Ex. 26/3-5, 13-A)
   53. On September 25, 1984, the Bank extended indirect credit to Respondent * * * in the amount of $23,736 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $23,736; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * *, * * * and/or * * * equaled $2,812,502 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,384,752. (* * *, Tr. 171, 190, 204, 310–311; Pr.Ex. 63/2(ln.85); Pr.Ex. 60/1-2; Pr.Ex. 57/1-2; Pr.Ex.49/1-3; Pr.Ex. 33/1-4; Pr.Ex. 28/1-3; Pr.Ex. 26/1-2)
   54. On October 1, 1984, the Bank extended direct credit to * * * in the amount of $150,000 by renewing a prior loan to * * * in the amount of $150,000 which was fully guaranteed by Respondent * * * as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * *, * * *, and/or * * * equaled $2,812,502 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,376,252. (* * *, Tr. 171, 190, 204, 310–311; Pr.Ex. 63/2(ln.86); Pr.Ex. 61/1-2)
   55. On December 5, 1984, the Bank extended indirect credit to Respondent * * * in the amount of $10,000 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $10,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * * and/or * * * equaled $2,597,502 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,161,252. (* * *, Tr. 171, 190, 205, 310–311; Pr.Ex. 63/3(ln.94); Pr.Ex. 65/1-2; Pr.Ex. 59/1-2; Pr.Ex. 55/1-2; Pr.Ex. 50/1-2; Pr.Ex. 45/1-2; Pr.Ex. 26/3-5, 13-A)
   56. On March 5, 1985, the Bank extended indirect credit to Respondent * * * in the amount of $10,000 by renewing a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $10,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indirectly by the Bank to Respondent * * *, * * * and/or * * * equaled $2,577,502 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,161,752. (* * *, Tr. 171, 190, 205, 310–311; Pr.Ex. 63/3(ln.104); Pr.Ex. 71/1-2; Pr.Ex. 65/1-2; Pr.Ex. 59/1-2; Pr.Ex. 55/1-2; Pr.Ex. 50/1-2; Pr.Ex. 45/1-2; Pr.Ex. 26/3-5, 13-A)
   57. On April 1, 1985, the Bank extended direct credit to * * * in the amount of $150,000 by renewing a prior loan to * * * in the amount of $150,000 which was fully guaranteed by Respondent * * *; as of the same date and following such extension of credit, the total aggregate amount of outstanding credit extended directly and indi- {{4-1-90 p.A-854}}rectly by the Bank to Respondent * * *, * * * and/or * * * equaled $2,872,502 and exceeded 25 percent of the unimpaired capital and surplus of the Bank by $1,477,252. (* * *, Tr. 171, 205, 310–311; Pr.Ex. 63/3(ln.110); Pr.Ex. 74/1-2; Pr.Ex. 61/1-2)
   58. Between February 1, 1983 and August 15, 1985 (a period of 926 days), the total aggregate amount of outstanding credit extended directly and indirectly to Respondent * * *, * * * and/or * * * continuously exceeded 25 percent of the unimpaired capital and surplus of the Bank. (* * *, Tr. 171, 310–311; Pr.Ex. 63)
   C. Findings of Fact - Respondent * * *
   59. As of June 18, 1984, the Bank had extended a total aggregate of unsecured direct and indirect credit to Respondent * * * and * * * in the amount of $793,358; as of the same date, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * exceeded 15 percent of the unimpaired capital and surplus of the Bank by $608. (* * *, Tr. 217–218, 310–311; Pr.Ex. 25/1(ln.15–32); Pr.Ex. 8)
   60. On June 20, 1984, the Bank extended unsecured direct credit to * * * in the amount of $210,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $1,003,358 and exceeded 15 percent of the unimpaired capital and surplus of the Bank of $210,608. (* * *, Tr. 213–214, 244–246, 260–263, 269–271, 310–311; * * *, Tr. 346–347, 358; * * *, Tr. 452–454, 478–484, * * *, Tr. 550–551; Pr.Ex. 25/1(ln.33); Pr.Ex. 9/1-4)
   61. On June 25, 1984, the Bank extended unsecured direct credit to Respondent * * * in the amount of $415,388 by renewing three (3) prior unsecured loans to Respondent * * * in the amount of $415,388; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $1,003,358 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $210,608. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/1(ln.36); Pr.Ex. 10/1-2; Pr.Ex. 8/7-17)
   62. On July 2, 1984, the Bank extended unsecured direct credit to Respondent * * * in the amount of $20,000 by renewing a prior unsecured loan to Respondent * * * in the amount of $20,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $1,003,358 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $146,708. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/1(ln.37); Pr.Ex. 11/1-3; Pr.Ex. 8/39-41)
   63. On July 9, 1984, the Bank extended unsecured indirect credit to Respondent * * * in the amount of $23,000 by renewing a prior unsecured loan to * * * which was guaranteed by Respondent * * * in the amount of $23,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $1,003,358 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $146,708. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/1(ln.38); Pr.Ex. 12/1-4; Pr.Ex. 8/44-46, 49–50)
   64. On August 1, 1984, the Bank extended unsecured indirect credit to Respondent * * * in the amount of $10,000 by renewing a prior unsecured loan to * * * which was guaranteed by Respondent * * * in the amount of $10,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $1,003,358 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $146,708. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/1(ln.39); Pr.Ex. 13/1-3; Pr.Ex. 8/53-56)
   65. On August 13, 1984, the Bank extended unsecured direct credit to Respondent * * * in the amount of $30,000 by renewing a portion of a prior unsecured loan to Respondent * * * in the amount of $60,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $973,358 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $116,708. (* * *, Tr. 213–214, 310– {{4-1-90 p.A-855}}311; Pr.Ex. 25/1(ln.40); Pr.Ex. 14/1-2; Pr.Ex. 8/69-70)
   66. On September 13, 1984, the Bank extended unsecured indirect credit to Respondent * * * in the amount of $95,000 by renewing three (3) prior unsecured loans to * * * which were guaranteed by Respondent * * * in the amount of $95,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $973,358 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $116,708. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/1(ln.41–43); Pr.Ex. 15/1-8; Pr.Ex. 8/29-32, 65–66, 71–72, 88–89)
   67. On September 17, 1984, the Bank extended unsecured indirect credit to Respondent * * * in the amount of $20,000 by renewing a portion of a prior loan to * * * which was guaranteed by Respondent * * * in the amount of $20,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $970,063 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $113,413. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/2(ln.44); Pr.Ex. 16/1-5; Pr.Ex. 8/78-80, 82–87)
   68. On October 1, 1984, the Bank extended unsecured direct credit to Respondent * * * in the amount of $20,000 by renewing a prior unsecured loan to Respondent * * * in the amount of $20,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $970,063 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $108,313. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/2(ln.45); Pr.Ex. 17/1-2; Pr.Ex. 11/1-3; Pr.Ex. 8/39-41)
   69. On October 9, 1984, the Bank extended unsecured indirect credit to Respondent * * * in the amount of $23,000 by renewing a prior unsecured loan to * * * which was guaranteed by Respondent * * * in the amount of $23,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $970,063 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $108,313. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/2(ln.46); Pr.Ex. 18/1-2; Pr.Ex. 12/1-4; Pr.Ex. 8/44-46, 49–50)
   70. On October 18, 1984, the Bank extended unsecured direct credit to Respondent * * * in the amount of $275,000 by making a new loan to Respondent * * * in such amount; as of the same data and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $1,245,063 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $383,313. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/2(ln.50); Pr.Ex. 20/1-2)
   71. On October 25, 1984, the Bank extended unsecured direct credit to Respondent * * * in the amount of $50,000 by renewing a portion of a prior unsecured loan to Respondent * * * in the amount of $50,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $1,020,063 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $158,313. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/2(ln.51); Pr.Ex. 21/1-3)
   72. On November 1, 1984, the Bank extended unsecured indirect credit to Respondent * * * in the amount of $10,000 be renewing a prior unsecured loan to * * * which was guaranteed by Respondent * * * in the amount of $10,000; as of the same date and following such extension of credit, the total aggregate amount of outstanding unsecured credit extended directly and indirectly by the Bank to Respondent * * * and * * * equaled $1,020,063 and exceeded 15 percent of the unimpaired capital and surplus of the Bank by $158,313. (* * *, Tr. 213–214, 310–311; Pr.Ex. 25/2(ln.52); Pr.Ex. 22/1-3; Pr.Ex. 13/1-3; Pr.Ex. 8/53-56)
   73. Between June 18, 1984 and November 14, 1984 (a period of 150 days), the total aggregate amount of outstanding unsecured credit extended directly or indirectly {{4-1-90 p.A-856}}to Respondent * * * and * * * continuously exceeded 15 percent of the unimpaired capital and surplus of the Bank. (* * *, Tr. 213–215; Pr.Ex. 25)
   The FDIC also submits proposed Conclusions of Law which also are adopted as part of this decision. These next follow.

III. CONCLUSIONS OF LAW

   A. General Conclusions of Law
   1. The FDIC has jurisdiction over Respondents * * * and * * * under section 18(j) of the Act (12 U.S.C. § 1828(j)) to impose civil money penalties for violations of section 22(h) of the Federal Reserve Act (12 U.S.C. § 375b) and Regulation O (12 C.F.R. Part 215) by Respondents * * * and * * *.

   [.4] 2. In an action for the imposition of civil money penalties under section 18(j) of the Act (12 U.S.C. § 1828(j)) for violations of section 22(h) of the Federal Reserve Act (12 U.S.C. § 375b) and Regulation O (12 C.F.R. Part 215), the FDIC has the burden of proving and otherwise establishing such violations by a preponderance of the evidence and not by clear and convincing evidence.
   3. The term "violates" as used in section 18(j) of the Act (12 U.S.C. § 1828(j)) includes, without any limitation, any action taken by a person, either individually or with one or more other persons, for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation of law or regulation.
   4. Section 22(h)(1) of the Federal Reserve Act (12 U.S.C. § 375b(1)) and section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)) prescribe maximum aggregate limitations on the amount of secured and unsecured credit that may be extended, either directly or indirectly, to "executive officers", "principal shareholders" and their "related interests", as defined in section 215.2 of Regulation O (12 C.F.R. §215.2).
   5. At all time pertinent to this proceeding, Respondent * * * was a "director", an "executive officer" and "principal shareholder" of the Bank within the meaning of sections 215.2(c), (d) and (j) of Regulation O (12 C.F.R.) §§ 215.2(c), (d) and (j)).
   6. At all times pertinent to this proceeding, Respondent * * * was a "director" and "principal shareholder" of the Bank within the meaning of sections 215.2(c) and (j) of Regulation O (12 C.F.R. §§ 215.2(c) and (j)).
   7. At all times pertinent to this proceeding, * * * ("* * *") was a "related interest" of Respondents * * * and * * * within the meaning of section 215.2(k) of Regulation O (12 C.F.R. § 215.2(k)).
   8. At all times pertinent to this proceeding, * * * ("* * *") was a "related interest" of Respondent * * * within the meaning of section 215.2(k) of Regulation O (12 C.F.R. § 215.2(k)).

   [.5.6] 9. The maximum aggregate amount of unsecured credit that may be extended by the Bank under section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)) to "executive officers" and "principal shareholders" and their "related interests" is an amount equal to 15 percent of the Bank's unimpaired capital and surplus ("the 15 percent unsecured lending limit of Regulation O"); and the maximum aggregate amount of secured credit that may be extended by the Bank to such persons and their "related interests" is an additional amount equal to 10 percent (resulting in a total of 25 percent) of the Bank's unimpaired capital and surplus ("the 25 percent secured lending limit of Regulation O"), provided that such additional credit (i.e., that portion equal to 10 percent of the Bank's unimpaired capital and surplus) is fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, which is equal to the amount of such additional credit.
   10. For purposes of applying the secured and unsecured lending limits of Regulation O, an "extension of credit" to Respondent * * * or Respondent * * * includes any loan or other extension of credit made by the Bank to Respondent * * * or Respondent * * * or to a related interest of Respondent * * * or Respondent * * *.

   [.7] 11. For purposes of applying the secured and unsecured lending limits of Regulation O, an "extension of credit" to Respondent * * * or Respondent * * * includes any loan or other extension of credit made by the Bank to a third party for which Respondent * * * or Respondent * * * is obligated as endorser or guarantor.

   [.8] 12. For purposes of applying the secured and unsecured lending limits of Regulation O, and "extension of credit" to Respondent * * * or Respondent * * * in- {{4-1-90 p.A-857}}cludes the renewal of a loan or other extension of credit previously made by the Bank to Respondent * * * or Respondent * * * or to a related interest of Respondent * * * or Respondent * * *.

   [.9] 13. For purposes applying the secured and unsecured lending limits of Regulation O, an "extension of credit" to Respondent * * * or Respondent * * * includes the renewal of a loan or other extension of credit previously made by the Bank to a third party for which either Respondent * * * or Respondent * * * is obligated as endorser or guarantor.
   14. For purposes of applying the secured and unsecured lending limits of Regulation O, an "extension of credit" to Respondent * * * or Respondent * * * includes any loan or other extension of credit made by the Bank to the extent that the proceeds of such loan or extension of credit are used for the tangible economic benefit of Respondent, * * *, or Respondent * * * or a related interest of Respondent * * * or Respondent * * *.
   15. For purposes of applying the secured and unsecured lending limits of Regulation O, an "extension of credit" to Respondent * * * or Respondent * * * includes the total amount of any loan commitment, standby letter of credit, or line of credit issued by the Bank to Respondent * * * or Respondent * * * regardless of whether or not such loan commitment, standby letter of credit, or line of credit is actually funded by the Bank.
   16. Loans or other extensions of credit made by the Bank to Respondent * * * or Respondent * * * or to their related interests, which are subject only to a contingent future right of offset by the Bank against other deposits or assets of Respondent * * * or Respondent * * * in the event of the default of such loans or other extensions of credit, are not "secured" and must therefore conform with the 15 percent unsecured lending limit of Regulation O.

   [.10] 17. Loans or other extensions of credit made by the Bank to Respondent * * * or Respondent * * * or to their related interests, which are secured by real property or unlisted securities are not "secured" and must therefore conform with the 15 percent unsecured lending limit of Regulation O.

   [.11] 18. Loans or other extensions of credit made by the Bank to Respondent * * * or Respondent * * * or to their related interests, are not "secured" and must therefore conform with 15 percent unsecured lending limit of Regulation O where the only property or collateral of the borrower held by the Bank is held for safekeeping only.
   B. Conclusions of Law - Respondent
   19-51. All of the loans and extensions of credit made or renewed by the Bank directly to or for tangible economic benefit of Respondent * * * and/or his related interests * * * and/or * * *, or made or renewed by the Bank to third parties for which Respondent * * * was obligated to pay as endorser or guarantor, as such loans and extensions of credit are more particularly described in Proposed Findings of Fact 25 through 57 (supra, at pp. 9–16), were made in violation of the lending limit prohibition of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)).
   52. Respondent * * * brought about, participated in, counseled, and/or aided or abetted the violations of Regulation O identified in Proposed Conclusions of Law, 19 through 51, which totaled 38 in number and which continuously remained outstanding and uncorrected by Respondent * * * for the period between February 1, 1983 and August 15, 1985.
   C. Conclusions of Law - Respondent * * *
   53.-66. All of the loans and extensions of credit made or renewed by the Bank directly to or for the tangible economic benefit of Respondent * * * and/or his related interest * * *, or made or renewed by the Bank to third parties for which Respondent * * * was obligated to pay as endorser or guarantor, as such loans and extensions of credit are more particularly described in Proposed Findings of Fact 59 through 72 (supra, at pp. 16–19), where made in violation of the lending limit prohibition of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)).
   67. Respondent * * * brought about, participated in, counseled, and/or aided or abetted the violations of Regulation O identified in Proposed Conclusions of Law, 53 through 66, which totaled 18 in number and which continuously remained outstanding and uncorrected by Respondent * * * for {{4-1-90 p.A-858}}the period between June 18, 1984 and November 15, 1984.
   The recited facts and conclusions are, at most only broadly descriptive of the actual disputes in these proceedings. The following text explores the disputed issues. In particular, full attention is given the contentions that * * * is not a related interest of * * * and * * *, that "contingent" funds and real estate are sufficient collateral for an "insider" loan and that there was no substantive violation of banking lending limits by * * * and * * *. Again the text tracks the opening brief of the FDIC.

IV. DISCUSSION AND CONCLUSION

   [.12] A. The Authority of FDIC to Impose Civil Money Penalties for Violations of the Lending Limit Prohibitions of Section 22(h) of Federal Reserve Act and Regulation O is Well Established
   1. The Lending Limit Prohibitions of Section 22(h) of the Federal Reserve Act and Regulation O
   Section 22(h)(1) of the Federal Act (12 U.S.C. § 375b(1)) provides:

       No member bank shall make any loan or extension of credit in any manner to any of its executive officers, or to any person who directly or indirectly or acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of such member bank, except in the case of such a bank located in a city, town, or village with less than thirty thousand in population, in which case such per centum shall be 18 per centum, or to any company controlled by such an executive officer or person, or to any political or campaign committee the funds or services of which will benefit such executive officer or person or which is controlled by such an executive officer or person, where the amount of such loan or extension of credit, when aggregated with the amount of all other loans or extensions of credit then outstanding by such bank to such executive officer or person and to all companies controlled by such executive officer or person and to all political or campaign committees the funds or services of which will benefit such executive officer or person or which are controlled by such executive officer or person, would exceed the limits on loans to a single borrower established by section 5200 of the Revised Statutes, as amended. For purposes of this paragraph, the provisions of section 5200 of the Revised Statutes, as amended, shall be deemed to apply to a State member bank as if such State member bank were a national banking association. [Emphasis added.]
Section 22(h)(7) of the Federal Reserve Act (12 U.S.C. § 375(7)) authorizes the Board of Governors of the Federal Reserve System to adopt rules and regulations that implement the prohibitions contained in section 22(h), including the lending limit prohibition in section 22(h)(1), and provides in part:
       The Board of Governors of the Federal Reserve System may prescribe such rules and regulations, including definitions of terms, as it deems necessary to effectuate the purposes and to prevent evasions of this subsection.
   Pursuant to this authority, the Board of Governors of the Federal Reserve System, effective March 10, 1979, adopted Regulation O (12 C.F.R. Part 215) in implementation of the statutory limitations and prohibitions pertaining to extensions of credit to executive officers, directors, principal shareholders, and their related interests, as provided in section 22(h) of the Federal Reserve Act (12 U.S.C. § 365b).
   The courts have consistently held that the implementing rules and regulations of regulatory agencies are presumed to be valid and enforceable unless it is clearly shown that such regulations are plainly contrary to and otherwise inconsistent with the enabling statute. See, Forester v. Consumer Product Safety Commission, 559 F.2d 774 (D.C. Cir. 1977); United Mine Workers of America v. Kleppe, 561 F.2d 1258 (7th Cir. 1977); and Smaldone v. United States, 458 F.Supp. 1000 (D. Kan. 1978).
   The limitations on extensions of credit provided in section 22(h)(1) of the Federal Reserve Act are implemented by section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)):
       Aggregate Lending Limit. No member bank may extend credit to any of its executive officers or principal shareholders or to any related interest of that person in an amount that, when aggregated with the amount of all other extensions of credit by the member bank to that person and to all related interests of that person, exceeds the lending limit of the member {{4-1-90 p.A-859}} bank specified in section 215.2(f) above. [Emphasis added; footnote omitted.]
   The "lending limit" specified in section 215.2(f) of Regulation O (12 C.F.R. § 215.2(f)) provides in pertinent part:
       The "lending limit" for a member bank is an amount equal to the limit of loans to a single borrower established by section 5200 of the Revised Statutes. 12 U.S.C. 84. This amount is 15 percent of the bank's unimpaired capital and unimpaired surplus in the case of loans that are not fully secured, and an additional 10 percent of the bank's unimpaired capital and unimpaired surplus in the case of loans that are fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the loan. The lending limit also includes any higher amounts that are permitted by section 5200 of the Revised Statutes for the types of obligations listed therein as exceptions to the limit. [Emphasis added; footnote omitted.]
   The provisions of section 5200 of the Revised Statutes, which establish maximum aggregate limits of secured and unsecured loans to a single borrower, are contained in 12 U.S.C. §§ 84(a)(1) and (2):
       (1) The total loans and extensions of credit by a national banking association to a person outstanding at one time and not fully secured, as determined in a manner consistent with paragraph (2) of this subsection, by collateral having a market value at least equal to the amount of the loan or extension of credit shall not exceed 15 per centum of the unimpaired capital and unimpaired surplus of the association.
       (2) The total loans and extensions of credit by a national banking association to a person outstanding at one time and fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the funds outstanding shall not exceed 10 per centum of the unimpaired capital and unimpaired surplus of the association. This limitation shall be separate from and in addition to the limitation contained in paragraph (1) of this subsection. [Emphasis added.]
   Subsection (d)(1) of section 5200 of the Revised Statutes (12 U.S.C. § 84(d)(1)) specifically authorizes the Comptroller of the Currency to adopt implementing rules and regulations which further define and clarify the maximum lending limits:
       The Comptroller of the Currency may prescribe rules and regulations to administer and carry out the purposes of this section, including rules or regulations to define or further define terms used in this section and to establish limits or requirements other than those specified in this section for particular classes or categories or loans or extensions of credit. [Emphasis added.]
   Pursuant to the statutory authority of 12 U.S.C. § 84(d)(1), the Comptroller of the Currency adopted rules and regulations that implement the lending limit prohibitions of 12 U.S.C. §§ 84(a)(1) and (2). The present provisions of such rules and regulations were adopted and made effective on April 14, 1983 (48 Fed. Reg. 15852, April 12, 1983), and are contained in Part 32 of Title 12 of the Code of Federal Regulations (12 C.F.R. Part 32 [Lending Limits]). Section 32.4 of the regulations of the Comptroller of the Currency (12 C.F.R. § 32.4) specifically implements the statutory criteria contained in 12 U.S.C. § 84(a)(2) regarding the type and nature of collateral required to be pledged to secure repayment of a loan before such loan will be considered to be "secured" for purposes of applying the higher aggregate lending limit provided in 12 U.S.C. § 84(a)(2). Sections 32.4(b) and (c) (12 C.F.R. §§ 32.4(b) and (c)) provide:
       (b) Compliance with Section 84(a)(2). Each loan or extension of credit based on the foregoing limitation shall be secured by readily marketable collateral having a current market value of at least 100 percent of the amount of the loan or extension of credit at all times. "Current market value" means the bid or closing price listed for an item in a regularly published listing or an electronic reporting service.
       (c) For purposes of this part, "readily marketable collateral" means financial instruments and bullion which are salable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions on an auction or a similarly available daily bid and ask price market.
    {{4-1-90 p.A-860}}
    "Financial instruments" include stocks, notes, bonds, and debentures traded on a national securities exchange, "OTC margin stocks" (as defined in Regulation U of the Federal Reserve Board), commercial paper, negotiable certificates of deposit, bankers' acceptances, and shares in money market and mutual funds of the types which issue shares in which banks may perfect a security interest. [Emphasis added.]
   Based upon a plain reading of the foregoing provisions, it is readily apparent that real property and unlisted securities do not qualify as collateral for purposes of applying the "secured" lending limit provided in 12 U.S.C. § 84(a)(2) to loans and other extensions of credit secured by such collateral.*

   [.13] The lending limit prohibitions contained in section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)) apply to "executive officers" and "principal shareholders" and require the aggregation of all "extensions of credit" to such persons and their "related interests". The definition of "executive officer" and "principal shareholder" are contained in sections 215.2(d) and (j) of Regulation O (12 C.F.R. §§ 215.2(d) and (j)) and provide in applicable part:

       (d) "Executive officer" of a company or bank means a person who participates or has authority to participate (other than in the capacity of a director) in major policy-making functions of the company or bank, whether or not: (1) The officer has an official title, (2) the title designates the officer an assistant, or (3) the officer is serving without salary or other compensation.

   [.14] (j) "Principal shareholder" means an individual or a company (other than an insured bank) that directly or indirectly, or acting through or in concert with one or more persons, owns, controls, or has the power to vote more than 10 percent of any class of voting securities of a member bank or company...A principal shareholder of a member bank includes (1) a principal shareholder of a bank holding company (as defined in 12 U.S.C. 1841(a)) of which the member bank is a subsidiary...[Emphasis added; footnote omitted.]
   The term "extension of credit" is defined in section 215.3 of Regulation O (12 C.F.R. § 215.3). The definitions applicable to this proceeding are contained in subsections (a)(3), (6) and (8), and section 215.3(f) (12 C.F.R. §§ 215.3(a)(3), (6) and (8), and 215.3(f)):
   (a) An extension of credit is a making or renewal of any loan, a granting of a line of credit, or an extending of credit in any manner whatsoever, and includes:

* * *

   (3) Issuance of a standby letter of credit (or other similar arrangement regardless of name or description)

* * *

   (6) An increase of an existing indebtedness, but not if the additional funds are advanced by the bank for its own protection for (i) accrued interest or (ii) taxes, insurance, or other expenses incidental to the existing indebtedness;

* * *

   (8) Any other transaction as a result of which a person becomes obligated to pay money (or its equivalent) to a bank, whether the obligation arises directly or indirectly, or because of an endorsement on an obligation or otherwise, or by any means whatsoever.

* * *

   (f) An extension of credit is considered made to a person covered by this part to the extent that the proceeds of the extension of credit are used for the tangible economic benefit of, or are transferred to, such a person. [Emphasis added.]
   As mentioned, Regulation O requires the aggregation of all extensions of credit to an executive officer or a principal shareholder and the "related interests" of such persons. The term "related interest" is defined in section 215.2(k) of Regulation O (12 C.F.R. § 215.2(k)):
       "Related interest" means (1) a company that is controlled by a person or (2) a political or campaign committee that is controlled by a person or the funds or services of which will benefit a person. [Emphasis added.]
   The terms "company", "control of a company" and "person", as used in the

* Respondents argue that reference to Comptroller of the Currency regulation 12 C.F.R. § 32.4 is improper. However, the underlying statutory provisions thereof 12 U.S.C. § 84 also apply to banks regulated by the FDIC and those statutory provisions are specifically referenced in 12 C.F.R. § 215 which is properly noticed in the order of the FDIC institution of those matters. Accordingly, Part 32 of the regulations of the Comptroller of the Currency applies in the present case as a matter of law.
{{4-1-90 p.A-861}}foregoing definition of "related interest", are defined in sections 215.2(a), (b) and (i), respectively, of Regulation O (12. C.F.R. §§ 215.2(a), (b) and (i)). For purposes of this action, however, the most significant of these definitions is that of "control of a company" in section 215.2(b) which provides:
       (b)(1) "Control of a company or bank" means that a person directly or indirectly, or acting through or in concert with one or more persons:
       (i) Owns, controls or has the power to vote 25 percent or more of any class of voting securities of the company or bank;
       (ii) Controls in any manner the election of a majority of the directors of the company or bank; or
       (iii) Has the power to exercise a controlling influence over the management or policies of the company or bank.
       (2) A person is presumed to have control, including the power to exercise a controlling influence over the management or policies, of a company or bank if:
       (i) The person is (A) an executive officer or director of the company or bank and (B) directly or indirectly owns, controls, or has the power to vote more than 10 percent of any class of voting securities of the company or bank; or
       (ii)(A) The person directly or indirectly owns, controls, or has the power to vote more than 10 percent of any class of voting securities of the company or bank, and (B) no other person owns, controls, or has the power to vote a greater percentage of that class of voting securities.
       (3) An individual is not considered to have control, including the power to exercise a controlling influence over the management or policies, of a company or bank solely by virtue of the individual's position as an officer or director of the company or bank.*
       (4) A person may rebut a presumption established by paragraph (b)(2) of this section by submitting to the appropriate Federal banking agency (as defined in 12 U.S.C. 1813(q)) written materials that, in the agency's judgment, demonstrate an absence of control. [Emphasis added.]
   Accordingly, if a person, acting in his own right or acting together with one or more other persons, owns or has the power to vote 25 percent or more of the voting stock of a company, such person is deemed to "control" that company by operation of law (12 C.F.R. § 215.2(b)(1)). A legal presumption of control exists where the person owns more than 10 percent (but less than 25 percent) of such stock and is an executive officer or director of the company (12 C.F.R. § 215.2(b)(2)). In such cases, it is incumbent upon the individual to overcome the legal presumption of control by submitting written materials that demonstrate the absence of control (12 C.F.R. § 215.2(b)(4)).
       2. FDIC Has Authority to Impose Civil Money Penalties for Violations of Section 22(h) of the Federal Reserve Act and Regulation O Pursuant to Section 18(j) of the Federal Deposit Insurance Act
   The statutory lending limit prohibitions contained in section 22(h) of the Federal Reserve Act (12 U.S.C. § 375b), as implemented by Regulation O (12 C.F.R. Part 215) [which, in turn, incorporates section 5200 of the Revised Statutes (12 U.S.C. § 84), as implemented by 12 C.F.R. Part 32], are made applicable to insured nonmember banks and to persons participating in the affairs of such banks pursuant to the provisions of section 18(j)(2) of the Act (12 U.S.C. § 1828(j)(2)) which provides in applicable part:
       The provisions of section 22(h) of the Federal Reserve Act, as amended, relating to limits on loans and extensions of credit by a member bank to its executive officers or directors or to any person who directly or indirectly owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of such member bank, ... or to companies controlled by such an executive officer, director, or person ... shall be applicable to every nonmember insured bank in the same manner and to the same extent as if such nonmember insured bank were a State member bank. [Emphasis added.]
   Section 18(j)(3)(A) of the ACT (12 U.S.C. § 1828(j)(3)(A)) further implements the foregoing statute by specifically empowering

* Respondents seek to combine sub parts (b)(2)(i) and (ii) and part (b)(3) into a single provision. However, sub part (b)(2)(i) is separate from part (b)(2)(ii) and part (b)(3) and cannot be combined.
{{4-1-90 p.A-862}}the FDIC to impose civil money penalties against any officer, director, or other person participating in the affairs of an insured nonmember bank who violates any provision of section 22(h) of the Federal Reserve Act or any lawful regulation promulgated thereunder, such as Regulation O. Section 18(j)(3)(A) provides in applicable part:
       Any nonmember insured bank which violates or any officer, director, employee, agent, or other person participating in the conduct of the affairs of such nonmember insured bank who violates any provision of section 23A or 22(h) of the Federal Reserve Act, as amended, or any lawful regulation issued pursuant thereto, shall forfeit and pay a civil penalty of not more than $1,000 per day for each day during which such violation continues. [Emphasis added.]
   The term "violates" is broadly defined in this section as follows:
       As used in this section [18(j)(3)], the term "violates" includes without any limitation any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation. [Emphasis added.]
   The cited provisions of section 18(j) of the Act were first enacted into law in 1978 under the provisions of Title I of the Financial Institutions Regulatory and Interest Rate Control Act of 1978 ("FIRIRCA") (Pub.L. No. 95–630, 92 Stat. 3641 (1978)). The legislative purpose of Title I or FIRIRCA was to correct certain perceived deficiencies in existing law that hampered the effectiveness of the supervisory efforts of the regulatory agencies. This was summarized by the Senate Committee on Banking, Housing and Urban Affairs in connection with earlier proposals to amend section 18(j) of the Act:
       Unfortunately, the bank regulatory agencies have not possessed all of the powers which they might have used to abate unsafe or unsound banking practices. Some of those unsafe or unsound practices could have been prevented had strong prophylactic legislation been on the books. These are the areas to which S. 2304 is addressed. (S. Rep. No. 843, 94th Cong., 2d Sess. 4 (1976)) [Emphasis added.]
   Congress clearly recognized the supervisory value of the power to impose civil penalties, as demonstrated by the following statement from the Senate Committee on Banking, Housing and Urban Affairs:
       The deterrent role that civil money penalties may be expected to have on violations of section 23-A [sic] of the Federal Reserve Act extend as well to sections 19 and 22 of the Federal Reserve Act. These sections proscribe [sic] limitations on the rate of interest which may be paid on deposits and place limitations on insider loans to officers, directors, and companies which they control. (S. Rep. No. 323, 95th Cong., 1st Sess. 9 (1977)) [Emphasis added.]
   The committee reports of both the House of Representatives and the Senate also recognized the deterrent role of civil money penalties. See, H.R. Rep. No. 1383, 95th Cong., 2d Sess. 16–17 (1978); and S. Rep. No. 843, 94th Cong., 2d Sess. 4 (1976). Such provisions were intended to add substantial strength or "teeth" to the supervisory and enforcement tools of the FDIC. The following excerpts from S. Rep. No. 323 of the Senate Committee on Banking, Housing and Urban Affairs, 95th Cong., 1st Sess. (1977) 8–9, are illustrative:
       Civil money penalties, which accrue for violating particular laws can play a crucial role in deterring violations of such laws.
       Within the past several years, there have been a number of instances in which violations of law have gone unpunished. The violations referred to were of a variety that could have had a detrimental effect upon the safety and solvency of financial institutions. The remedies available to the regulatory agencies to prevent and cure these violations of law were not as broad as they might have been.

    * * *

       The civil money penalties provided in the bill are designed to be strong provisions of law. The provisions provide for the penalties to be assessed from the first day of the occurrence of any violation. Thus, the provisions should, to a significant extent have a self-enforcing effect. [Emphasis added.]
   The following comments contained in H.R. Rep. No. 1383 of the House Committee on Banking, Finance and Urban Affairs, 95th Cong., 2d Sess. (1978) 9–17 are also indicative of the congressional intent un- {{4-1-90 p.A-863}}derlying enactment of the power to impose civil money penalties:
       In mid-1977, banking problems moved back to the front pages with the revelation of massive insider dealings involving Bert Lance while he served as a bank officer in Georgia before becoming director of the Office of Management and Budget. These revelations were brought into American homes through television and provided a cram course for millions of families on the day-to-day activities of a bank insider.

    * * *

       The banking agencies have made sound arguments in support of authorization for imposing civil money penalties for violations of laws, rules, and orders. A monetary penalty tied to a violation can give an agency the flexibility it needs to secure compliance by individuals or institutions. Presently, an agency is often faced with the option of having to ignore a violation or imposing a penalty it often considers to be overkill. A cease-and-desist action against an institution or referral of a possible criminal action may be too severe for the criticized action. Daily money penalties should serve as deterrents to violations of laws, rules, and regulations, and orders of the agencies. [Emphasis added.]
   The courts have also recognized the importance of civil money penalties in deterring abusive banking practices. In Fitzpatrick v. Federal Deposit Insurance Corporation, 765 F.2d 569 (6th Cir. 1985), civil money penalties assessed by the FDIC against a bank director were upheld for violations of sections 22(h) and 23A of the Federal Reserve Act (12 U.S.C. §§ 375b and 371c). The court stated:
       The assessment of penalties was under the authority of the Financial Institutions Regulatory and Interest Rate Control Act of 1978, Pub. L. No. 95–630, 92 Stat. 3641. This Act has a variety of purposes, but the most prominent is combating improper insider transactions. The statute represents congressional awareness that insider abuses are a predominant cause of bank failures and can be combated only with strong protective legislation. (Id. at 574.) [Emphasis added.]
   The Sixth Circuit in Fitzpatrick went on to note that bank directors and officers may be required to pay civil money penalties regardless of whether any damage or loss to the bank is shown to have resulted from the violations for which such penalties were imposed. (Id. at 576.)
       3. Liability for the Payment of Civil Money Penalties for Violations of Section 22(h) of the Federal Reserve Act and Regulation O is Analogous to Common Law Liability of Bank Directors
   The liability of a bank officer or director for payment of a civil money penalty imposed pursuant to statute is analogous to common law liability of bank directors. The following observation by the Sixth Circuit Court of Appeals in Fitzpatrick, supra, is particularly significant:
       Congress intended the Financial Institutions Regulatory Act to be a re-emphasis, if not an extension of bank directors' fiduciary duties. (765 F.2d 569 at 576.) [Emphasis added.]
   Numerous decisions have held that corporate directors, including bank directors, occupy the position of trustee for the institution's shareholders and creditors. Briggs v. Spaulding, 141 U.S. 132 (1891); Robinson v. Hall, 63 F. 222 (4th Cir. 1884); Warner v. Penoyer, 91 F. 587 (2nd Cir. 1898); Blythe v. Enslen, 85 So. 1 (Ala. 1919); Bank of Commerce v. Goolsby, 196 S.W. 803 (Ark. 1917); Lippit v. Ashley, 94 A. 995 (Conn. 1915); Greenfield Savings Bank v. Abercrombie, 97 N.E. 897 (Mass. 1912); Prudential Trust Company v. Brown, 171 N.E. 42 (Mass. 1930); and Cornell V. Seddinger, 85 A. 446 (Pa. 1912).

   [.15] Directors of banks must direct. The most common dereliction of duty by bank directors is the failure to maintain reasonable supervision and direction over the activities and affairs of the bank. The general fiduciary duty of a bank director was forcefully characterized by the Supreme Court in Briggs v. Spaulding, 141 U.S. 132 (1891):

       [W]e hold that directors must exercise ordinary care and prudence in the administration of the affairs of a bank, and that this includes something more than officiating as figureheads. They are entitled under the law to commit the banking business, as defined, to their duly authorized officers, but this does not absolve {{4-1-90 p.A-864}}them from the duty of reasonable supervision, nor ought they to be permitted to be shielded from liability because of want of knowledge of wrong-doing, if that ignorance is the result of gross inattention. (Id. at 165–166.) [Emphasis added.]

   [.16] Directors are negligent if they leave the management of a corporation entirely up to others. Heit v. Bixby, 276 F. Supp. 217 (E.D. Mo. 1967). Accordingly, directors may be held liable for the breaches of trust by officers to whom management is entrusted, and reliance upon their apparent trustworthiness does not afford an escape from such liability. (Id. at 231.) In Gibbons v. Anderson, 80 F. 345 (W.D. Mich. 1897), the court held several bank directors liable for losses caused by a co-director, who was also an officer of the bank. The court, although recognizing that the directors were unaware of any actual wrongdoing on the officer's part, held that their acquiescence without positive action did not discharge their duty of reasonable supervision. See also, Sutton v. Reagan & Gee, 405 S.W. 2d 828, 835 (Tex. Civ. App. 1966). It is also significant that courts have found that violations of law involve not only a lack of due care, but intentional, knowing conduct, resulting in virtual strict liability for loans that exceed the bank's legal lending limit. See, Joy v. North, 692 F.2d 880 (2nd Cir. 1982), cert. denied, 103 S. Ct. 1498 (1983).
   There is also substantial case and commentary to the effect that directors of financial institutions are held to a higher fiduciary standard than other corporate directors. See, e.g., Gadd V. Pearson, 351 F.Supp. 895 at 903 (M.D. Fla. 1972), where the court stated that "officers and directors of banking corporations generally owe a greater duty than other corporate officers and directors." Accord, Levitan v. Stout, 97 F.Supp 105 (W.D. Ky. 1951). The highest court of New York in Hun v. Cary, 82 N.Y. 65 (1880), noted over 100 years ago:
       [W]hat would be slight neglect in the care exercised in the affairs of a turnpike corporation, or even a manufacturing corporation, might be gross neglect in the care exercised in the management of a savings bank entrusted with the savings of a multitude of poor people, depending for its life upon credit and liable to be wrecked by the breach of suspicion." (Id. at 71.) [Emphasis added.]
   In his exhaustive casebook of corporate law, Professor * * * has collected numerous cases for the proposition that bank directors are held to a higher standard than other corporate directors. See, Greenfield Savings Bank v. Abercrombie, 97 N.E. 897, 899 (Mass. 1912); Cosmopolitan Trust Company v. Mitchell, 136 N.E. 403, 408 (Mass. 1922); and O'Connor v. First National Investors' Corporation, 177 S.E. 852, 860 (Va. 1935). (Cary, Cases and Materials on Corporations 525 (unabr. 4th ed. 1969).) See also, Barber v. Kolowich, 277 N.W. 189, 192 (Mich. 1938); Lippit v. Ashley, 94 A. 995 (Conn. 1915); Gause v. Commonwealth Trust Company, 89 N.E. 476 (N.Y. 1909); and Litwin v. Allen, 25 N.Y.S.2d 667 (Sup. Ct. 1940).

   [.17] The failure to heed notices and warnings of mismanagement and to take corrective action after knowledge of such mismanagement is a breach of fiduciary duty for which directors have been held accountable. In Ringeon v. Albinson, 35 F.2d 753 (D. Minn. 1929), the court found that the directors of a closed national bank had failed to take remedial action following repeated warnings by bank examiners, and held that such failure constituted actionable conduct. (Id. at 755.) In Atherton v. Anderson, 99 F.2d 883 (6th Cir. 1938), bank directors gave only perfunctory attention to supervisory warnings contained in reports of examination. This clearly contributed to the court's conclusion that the supervision by the bank's board was totally inadequate when it noted that a bank examination report presented "... about as gloomy a picture as can be imagined", and that a subsequent examination report "was, if possible, even more alarming." (Id. at 984.) [Emphasis added.] As a result, bank directors must respond to notices and warnings of mismanagement continued in supervisory reports of examination and take corrective action. See also, Depinto v. Providence Security Life Insurance Co., 374 F.2d 37, 45 (9th Cir. 1967).
   The fiduciary duty of a bank director in the face of notice or knowledge of mismanagement was eloquently described in Rankin v. Cooper, 129 F. 1010 (W.D. Ark. 1907):

       If...directors know, or by the exercise of ordinary care should have known, any facts which would awaken suspicion and put a prudent man of his guard, then a degree of care commensurate to the evil {{4-1-90 p.A-865}}to be avoided is required, and a want of that care makes them responsible. Directors cannot...shut their eyes to what is going on around them. (Id. at 1013.) [Emphasis added.]
   In Speer v. Dighton Grain, Inc., 624 P.2d 952 (Kan. 1981), the defendant directors argued that they were not responsible for failing to prevent the improper activities of their managing officer. The court replied:
       The [defendants] as directors and officers of the corporation may not have assumed active duties or involved themselves in any part of the financial management of the day to day affairs of the corporation, but nevertheless, a fiduciary duty was owed to the corporation. When they had knowledge of acts of mismanagement...and failed to take steps to correct the same, they breached this duty. (Id. at 955.) [Emphasis added.]
   There is overwhelming and undisputed evidence that the Respondents were repeatedly placed on notice and warned by both the FDIC and * * * State Department of Banking and Finance of numerous and serious violations of Regulation O which are the subject of this action.*
       8. The Burden of Proof Required of FDIC to Establish Violations of Section 22(h) of the Federal Reserve Act and Regulation O is by a "Preponderance of the Evidence"
       1. The Administrative Procedure Act and Case Law Establish "Preponderance of the Evidence" as the Applicable Standard of Proof in This Action

   [.18] Section 18(j)(3)(C) of the Act (12 U.S.C. § 1828(j)(3)(C) provides that any person charged with a violation of law or regulation for which a civil money penalty may be imposed under section 18(j)(3)(A) of the Act (12 U.S.C. § 1818(j)(3)(A) is entitled to an "agency hearing" upon a request made within ten (10) days after issuance of the notice of assessment. This statute further provides:
       In such hearing all issues shall be determined on the record pursuant to section 554 of title 5, United States Code [Administrative Procedure Act].
   Section 556(a) of title 5, United States Code, (5 U.S.C. § 556(a)) provides that the procedural protections of 5 U.S.C. § 556 are applicable to hearings required to be conducted in accordance with section 554 (5 U.S.C. § 554). Accordingly, the standard of proof contained in section 556(d) (5 U.S.C. § 556(d)) is applicable to this action. Section 556(d) provides in applicable part:
       A sanction may not be imposed or rule or order issued except on consideration of the whole record or those parts thereof, cited by a party and supported by and in accordance with reliable, probative, and substantial evidence. [Emphasis added.]
   It is well settled that the standard of burden of proof contemplated by the foregoing provisions of the Administrative Procedure Act is the "preponderance of the evidence" standard and not the more stringent "clear and convincing evidence" standard. See, Sea Island Broadcasting Corp, of S.C. v. Federal Communications Commission, 627 F.2d 240, 243 (D.C. Cir.) cert. denied. 449 U.S. 834 (1980): Collins Sec. Corp. v. Securities Exchange Commission. 562 F.2d, 820, 823 (D.C. Cir. 1977); 9 Wigmore, Evidence § 2498 (3d ed. 1940); and H.R. Rep. No. 1980, 79th Cong., 2d Sess. 37 (1946).
   The United States Supreme Court confirmed application of the "preponderance of the evidence" standard in the context of an administrative disciplinary proceeding in Steadman v. Securities and Exchange Commission, 450 U.S. 91 (1981). Justice Brennan, writing for the majority in Steadman, made the following analysis of Section 7(c) of the Administrative Procedure Act (5 U.S.C. § 556(d)):
       The language of the statute itself implies the enactment of a standard of proof. By allowing sanctions to be imposed only when they are "in accordance with ... substantial evidence", Congress implied that a sanction must rest on a minimum quantity of evidence. The word "substantial" denotes quantity. The phrase "in accordance with...substantial evidence" thus requires that a decision be based on a certain quantity of evidence...The phrase "in accordance with" lends further sup-

    * Respondents appear to me to be honorable men and in my opinion have caused no damage to any depositor certainly according to the evidence of record. However, they still are bound by Regulation O, which is a vital banking provision drafted and adopted because of a common sense need to protect those who trust their funds to banks. Honorable as they are, * * * and * * * are not above the law.
    {{4-1-90 p.A-866}}port to a construction of [the statute] as establishing a standard of proof...[The statute] provides that an agency may issue an order only if that order is "supported by and in accordance with ...substantial evidence" (emphasis added). The additional words "in accordance with" suggest that the adjudicating agency must weigh the evidence and decide, based on the weight of the evidence, whether a disciplinary order should be issued. (Id. at 99–100.) [Citations omitted; emphasis in the original and added.]
   Based upon this analysis, the court in Steadman concluded that the standard of proof adopted by the Administrative Procedure Act in 5 U. S. C. § 556(d) is "the traditional preponderance-of-the-evidence standard". (Id. at 103.)
   The holding in Steadman is significant, particularly in view of the severity of the sanctions imposed, which provided a permanent bar from affiliating with any investment advisory business and a one-year suspension from associating with any broker or dealer in securities. Because such sanctions resulted in a deprivation of livelihood, prior SEC decisions had held that the "clear and convincing evidence" standard must be applied. See. Collins Sec. Corp. v. Securities and Exchange Commission, 562 F.2d 820 (D.C. Cir. 1977). The Steadman decision, however, clearly established that the higher burden of proof of the "clear and convincing evidence" standard was not applicable. See, Seaton v. Securities and Exchange Commission. 670 F.2d 309 (D.C. Cir. 1982), where the D.C. Circuit Court of Appeals held that the holding in Collins (requiring clear and convincing evidence) had been "rendered ineffectual by Steadman". (Id. at 311.) Finally, the Fifth Circuit in Huddleston v. Herman & McLean. 640 F.2d 534 (5th Cir. 1981), held that the holding in Steadman applying the preponderance of the evidence standard of proof was "the appropriate burden of proof in an administrative proceeding". (Id. at 537.)
       2. The Testimony and Conclusions of FDIC Examiners Should be Accorded Great Weight Regarding the Violations Alleged and the Remedy Sought by FDIC
   The FDIC was created by Congress more than 50 years ago to promote and maintain confidence in the system of commercial banking in the United States. During the past half-century, the FDIC has won the confidence of the general public as well as the industry it regulates, and it has earned the reputation of engaging highly skilled and well trained professional examiners to maintain that confidence.
   The four FDIC commissioned examiners who testified in this action, including both of the examiners-in-charge who supervised the conduct of the 1983 and 1984 FDIC examinations of the Bank, had a combined total of 49 years of experience in examining banks, with each examiner having an average of 12 years of experience. The same four FDIC examiners participated in approximately 1,400 bank examinations; all had extensive training and educational credentials, including college degrees; two had received graduate degrees from accredited graduate schools of banking; and each was qualified as an expert in the fields of bank examination and supervision (* * * , Tr. 20–22; * * * , Tr. 102–104; * * * Tr. 167–169; * * * , Tr. 311–314).

   [.19] Based upon the extensive training, education, professional experience and expertise of the FDIC examiners who testified in this action, great weight should be accorded to their analyses, opinions and conclusions regarding the issues in dispute and remedy of civil money penalties sought by the FDIC. In this regard, the courts have repeatedly expressed deference to the expertise of administrative agencies in formulating a remedy, such as an order requiring the payment of a civil money penalty, to effectuate the purpose and intent of the enabling statute. See, L.G. Balfour Company v. Federal Trade Commission, 562 F.2d 749 (D.C. Cir. 1977); and Groos National Bank v. Comptroller of the Currency, 573 F.2d 889 (5th Cir. 1978). In Groos, the Fifth Circuit Court of Appeals found that:

       [O]nce] the Comptroller, finds a violation, he may, within his allowable discretion, fashion relief in such a form as to prevent future abuses. (Id. at 897)
   The Ninth Circuit in delJunco v. Conover, 682 F.2d 1338 (9th Cir. 1982), cert. denied, 103 S. Ct. 786 (1983), upheld a cease and desist order issued by the Comptroller requiring directors of a national bank to indemnify the bank for the loss of all principal and interest on loans which exceeded the bank's legal lending limit, as well as for the bank's collection costs and attorneys' fees paid by the bank for the directors' defense. [Section 93 of title 12 of the Unit- {{4-1-90 p.A-867}}ed States Code (12 U.S.C. § 93) authorizes the Comptroller of the Currency to bring an action against a director of a national bank who knowingly violates any provision of the National Bank Act, including the lending limit prohibitions of 12 U.S.C. § 84.] Citing Groos, the court in delJunco held that the Comptroller has "broad discretion to cure the effect of a violation." (Id. at 1340.)
   Accordingly, it is not a function of the judiciary to second-guess the supervisory need for or the practical implications of the requirements of an order. Rather, the courts must determine whether there is a reasonable connection or nexus between the prohibitions and/or requirements of an order and the legislative purpose and intent of the statute that enabled the agency to issue the order. Southern Steamship Co. v. National labor Relations Board, 316 U.S. 31 (1942). See also, Udall v. Washington, Virginia & Maryland Coach Co., 398 F.2d 765 (10th Cir. 1968). If it is determined that there is a reasonable relationship and the requirements of an order do not transcend the legislative purpose of the enabling statute, the order cannot be struck as arbitrary or capricious. See, Kent v. Hardin, 425 F.2d 1346 (5th Cir. 1970).
   The principal focus of attention in this action, therefore, should not be concerned with the supervisory need or the practicalities involved concerning the remedy proposed by the FDIC, but should be confined to a determination of whether the FDIC has sustained its burden of proof and, if so, whether the remedy proposed by the FDIC is reasonably related to and in accordance with the legislative purpose of section 22(h) of the Federal Reserve Act, as implemented by Regulation O, and the authority of FDIC to impose civil money penalties for violations of such statute and regulation under the provisions of section 18(j)(3)(A) of the Act. [See discussion, supra, at pp. 31-35.]
       C. FDIC Has Established Numerous Violations of the Lending Limitation Prohibitions of Section 22(h) of the Federal Reserve Act and Regulation O by Respondents by a "Preponderance of the Evidence"
       1. Violations of Regulation O by Respondent * * *
   Very few of the facts and circumstances pertaining to the alleged violations of Regulation O by Respondent * * * are in dispute. Counsel for Respondent * * * stipulated at the hearing of this action that all of the factual information reflected in FDIC Exhibit 63 was accurate and therefore uncontested (Tr. 176–182). FDIC Exhibit 63 is a composite exhibit which summarizes all of the transactional information contained in 47 FDIC Exhibits (Pr.Ex. 3A, 26, 27A-B, 28–31, 32A, 33–36, 37A, 38–61, 62A, 65, 67, 71–74, 76), and shows a complete chronology of all of the transactions and events that gave rise to this proceeding against Respondent * * * by detailing each extension of credit involving Respondent * * * which caused, continued, increased, reduced, and eliminated the violations of law in issue; that exhibit also shows the context of continuing events during which such extensions of credit occurred. Based upon such stipulation, each of the 47 FDIC exhibits summarized in FDIC Exhibit 63 was redacted to exclude those portions reflecting undisputed factual matters, and all were received in the record on that basis (Tr. 444–445).
   Accordingly, the following factual information reflected in FDIC Exhibit 63 is undisputed: (a) the number of transactions shown, (b) the occurrence and nature of the events shown, (c) the dates of the transactions and events shown, (d) the descriptive types of transactions shown (i.e., new loan, renewal, or payment), (e) the amounts of the transactions shown, (f) the amounts of the opening and closing aggregate balances shown, (g) the amounts of the loan limit of the Bank applicable to the transactions shown, and (h) the identity of the borrowers involved in the transactions shown.
   In light of the stipulation of record and the fact that all of the transactions and events involving Respondent * * * reflected in FDIC Exhibit 63 have been described in narrative form with supporting citations to the record in Proposed Findings of Fact 1 through 58 ((supra, at pp. 5–16), there is little need for further elaboration or supporting proof of those transactions here, except to note that most of the violations occurred subsequent to specific notices and warnings by FDIC examiners (* * * Tr. 204–205, 213; Pr.Ex. 63/1-3(In.27–110). In one instance, a violation occurred after Respondent * * * was specifically advised by both FDIC Examiner * * * and Respondent * * * that the renewal of any out- {{4-1-90 p.A-868}}standing credit by Respondent * * * would be in violation of Regulation O (* * * Tr. 229–230). It is also significant that four violations of Respondent * * * occurred after the meeting of Respondent, * * * with FDIC Examiner * * * on November 5, 1984, including one violation that occurred even after Respondent * * * responded to a letter from FDIC concerning the possible imposition of a civil money penalty (* * * Tr. 205; Pr.Ex. 63/3(In.91–110), 65, 71, 73, 74).
   Several arguments have been advanced in defense of the alleged violations of Regulation O by Respondent * * *. Most of these contentions are contained in Respondent * * *'s letter response to the FDIC dated March 12, 1985 (Pr.Ex. 72); others were advanced on behalf of Respondent * * * in the Response to the FDIC Request for Admissions. For purposes of discussion, the arguments and contentions raised by Respondent * * * in defense of the alleged violations are essentially three in number: (a) the transaction on March 4, 1983 in the amount of $2,625,000 involving the * * * was not a "loan" or "extension of credit" attributable to Respondent * * * for purposes of Regulation O; (b) Respondent, was not aware of the loan by the Bank to * * * and (c) the loans and extensions of credit to * * * were improperly attributed to Respondent * * * for purposes of Regulation O. Each of these arguments is discussed below.
       (a) The loan to * * * was an "extension of credit" to Respondent * * * within the meaning of Regulation O.
   On March 4, 1983 the * * * issued an industrial revenue bond in the principal amount of $2,625,000 in exchange for a like sum of money from the Bank, and the obligation was repayable to the Bank over a period of 19 years in graduated monthly payments of principal and interest (* * * Tr. 28–30; Pr.Ex. 27A/9). It is not necessary to engage in a protracted discussion of all of the various (and frequently complicated) terms and conditions of the debt obligation to formulate a clear conclusion that it constituted an "extension of credit" by the Bank to Respondent * * * within the meaning of section 215.3 of Regulation O (12 C.F.R. § 215.3), and that such extension of credit was properly aggregated with other extensions of credit to Respondent * * * for purposes of determining whether such aggregate credit exceeded the maximum lending limit in violation of section 215.4(c)). of Regulation O (12 C.F.R. §215.4(c)).
   Respondent * * * has admitted that * * * is a "related interest" within the meaning of section 215.2(k) of Regulation O (12 C.F.R. § 215.2(k) (Rs.Adm. 4(b), 26(b)(1)(ii), 31(a), 48(a), 61(a)). In addition, counsel for Respondent * * * stipulated that all of the proceeds of the debt were paid for the economic benefit of * * * and that Respondent * * * fully guaranteed the debt (Tr. 30–31). The establishment of these facts alone is sufficient to support a determination that the debt constituted an "extension of credit" to Respondent * * * within the meaning of Regulation O. First, the debt was fully guaranteed by Respondent * * * thus bringing it within the definition of "extension of credit" contained in section 215.3(a)(8) of Regulation O (12 C.F.R. § 215.3(a)(8)); secondly, the proceeds of the obligation were used for the tangible economic benefit of an admitted related interest of Respondent * * *, thus satisfying the definition of "extension of credit" contained in section 215.3(f) of Regulation O (12 C.F.R. § 215.3(f)). Accordingly, the debt was both an indirect obligation of Respondent * * * by virtue of his guarantee and a direct obligation of a related interest of Respondent * * *. Both types of obligations are expressly covered under Regulation O.
   The argument of Respondent * * * that the debt obligation of the industrial revenue authority should be treated as the purchase of a bond and an "investment" by the Bank, and not as a loan or extension of credit subject to the lending limit prohibitions of Regulation O, is essentially transparent and places form over substance. Such argument has never been previously advanced to FDIC examiners by or on behalf of Respondent * * * (* * * Tr. 44; * * * Tr. 229; * * * Tr. 317), and appears to be an afterthought, as indicated during the cross examination of Respondent * * * (* * * Tr. 533):
       Q. I think you also testified that sometime during the examination in September of 1983, you had a meeting with yourself, Mr. * * * and Mr. * * * and FDIC Examiner * * * and FDIC Examiner * * *; [concerning the loan to the * * *; is that right?
       A. I had a meeting with Mr. * * * and Mr. * * * , as I recall in Mr. * * * office {{4-1-90 p.A-869}}—maybe Mr. * * * memory is better than mine, maybe Mr. * * * was there, I am not certain.

    * * *

       Q. It was at this meeting that you asked Mr. * * * what happened, and I think you testified that you said that he had called the state?
       A. No, he said that he had called the state and I think Mr. * * * might remember this, I don't know, and that they said—I can't remember the wording, but the effect of it was that the state considered it an investment, not a loan. Well, being somewhat agile, I immediately adopted that position.
       Q. But, Mr. * * * didn't tell you that he was told by the state that it [i.e., the loan to * * * was okay under Regulation O?
       A. Mr. * * * I have a fairly good memory, but Regulation O is not one of the things that, as a regulation, that I became too concerned about until not long before all this. I don't know whether Regulation O was mentioned or not and to my mind, it doesn't make any difference whether it was mentioned or not. [Emphasis added.]
   Several important factors preclude treatment of the obligation in question as anything other than a loan or extension of credit to Respondent * * *. First, the definition of "extension of credit" in section 215.3(a) of Regulation O is expressly unconcerned with the form of the debt instrument when it states"...in any manner whatsoever" (12 C.F.R. §215.3(a)). In this regard, a "bond" is not significantly different from a "note"; both are evidences of debt or an extension of credit (* * * Tr. 36). In addition, when the obligation in question was funded by the Bank, it was entered on the general ledger and books of the Bank as "SCM [State, County, Municipal] Loans" (Pr.Ex. 27A/5-8), and the debt was reported by the Bank in its quarterly call reports as a "loan" (* * *, Tr. 32; Pr.Ex. 27B/15). Further, the minutes of the meeting of board of directors of the Bank at which the transaction was approved characterized the obligation as an "insider transaction" and a "loan" (* * * , Tr. 45; * * * , Tr. 426–428; Pr.Ex. 32C/34); and the Bank was paid an "origination fee" by Respondent * * * (as the principal owner of * * *) for funding the obligation, which was tantamount to the payment of a loan origination fee to the Bank (* * * , Tr. 296–299; * * * , Tr. 419).
   Finally, and as previously discussed (supra. at pp. 27–28), Part 32 of the regulations of Comptroller of the Currency (12 C.F.R. Part 32) implements the lending limit provided in 12 U.S.C. § 84, which is incorporated by reference in section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)). Section 32.110 of the regulations of the Comptroller of the Currency (12 C.F.R. § 32.110) specifically addresses loans to industrial development authorities:
       A loan or extension of credit to an industrial development authority or similar public entity created for the purpose of constructing and leasing a plant facility, including a health care facility, to an industrial occupant is not a loan or extension of credit to the authority for the purposes of 12 U.S.C. § 84 if (a) the bank relies on the credit of the industrial occupant in making the loan; (b) the authorities liability with respect to the loan is limited solely to whatever interest it has in the particular facility; (c) the authority's interest is assigned to the bank as security for the loan or a promissory note from the lessee to the bank provides a higher order of security than the assignment of a lease; and (d) the industrial occupant's lease rentals are assigned and paid directly to the bank. A loan or extension of credit meeting the above criteria will be deemed a loan or extension of credit to the lessee and will be combined with other obligations of the lessee for purposes of section 84. [Emphasis added.]
   The obvious purpose of the foregoing regulation is to identify the principal beneficiary ("industrial occupant" or "lessee") of the proceeds of a loan made to an industrial development authority as the borrower (as opposed to the development authority itself) for purposes of applying the lending limit of 12 U.S.C. § 84, provided that certain conditions are satisfied. In the present case, * * * was the "industrial occupant" and "lessee" within the meaning of section 32.110, and the credit extended by the Bank satisfied all of the conditions of that regulation (* * * , Tr. 28–32; Pr.Ex. 27A/9-12, 15–21, 26–51). Accordingly, under the pro- {{4-1-90 p.A-870}}visions of section 32.110 (12 C.F.R. § 32.110), the $2,625,000 loan to the * * * is properly treated as a loan to (* * * for purposes of applying the lending limit prohibition of 12 U.S.C. § 84 vis-a-vis section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)).
       (b) Respondent * * * was fully cognizant of the loan to * * * made for the benefit of * * *
   The statement of Respondent * * * that he "was not aware that The * * * Bank had purchased the bonds prior to the September 23, 1983 examination by the FDIC examiners" (Pr.Ex. 72/1) is flatly contradicted by the evidence. There is uncontroverted evidence that Respondent * * * signed the minutes of a meeting of the board of directors of the Bank on February 17, 1983, which clearly indicated that the Bank intended to fund an industrial development bond to be issued by the * * * for the benefit of * * * in the amount of $2,625,000 (Pr.Ex. 32C/3). Respondent * * *'s signatures also appear on records pertaining to his guarantee of the loan which are dated March 4, 1983 (Pr.Ex. 27A/14, 21).
   FDIC is aware of the fact that there is testimony in the record concerning certain representations that were allegedly made by the former president and chief executive officer of the Bank (Mr. * * *) to the board of directors regarding his intention to participate or sell all but a small portion of the debt of the industrial development authority to other commercial banks. Mr. * * * allegedly made representations to the effect that he would obtain commitments from other banks to purchase participations totaling more than $2,000,000 (* * * , Tr. 427-431; * * * , Tr. 504). Although the sworn testimony of Mr. * * * was not offered by Respondents to confirm whether and how such representations were made, the implication is that Respondent * * * believed the alleged representations of Mr. * * * and was therefore "unaware" of the total amount of credit actually extended by the Bank. Since the record is also void of any testimony of Respondent * * * , a clear picture of the precise mental state of Respondent * * * is not discernible.
   There is sufficient evidence in the record to cast serious doubt on the degree and amount of reliance purportedly made on the alleged representations of the former chief executive officer of the Bank concerning his intent to participate all but a small portion of the loan to other banks. First, it should be noted that the minutes of the meeting of the board of directors of the Bank on February 17, 1983 approving the transaction (Pr.Ex. 32C/3-4) do not mention or make any reference to a participation of the debt with any other bank as a condition to the board's approval, even though it was conceded that such condition was "significant" (* * * Tr. 427-428; * * * , Tr. 523). Secondly, and perhaps more significant, is the fact that when it was allegedly discovered for the first time in the presence of FDIC examiners during the 1983 FDIC examination that the represented participations to other commercial banks had not been obtained by Mr. * * * , there was a curious lack of indignation or other objection on the part of either Respondent * * * or Respondent * * *. The following excerpt from the cross examination of Respondent * * * (Tr. 533–537) illustrates the point:
   Q. Mr. * * * , I think you testified on direct that it was sometime during the September FDIC examination of the Bank in 1983 that you first realized that ...Mr. * * * had mislead the Board and...the * * *] obligation had not been participated —is that essentially correct?
   A. I think when I learned—I don't remember the date, but when I learned it,...I was surprised to learn that we had that much of it, I expected that we had, probably $300,000 worth of it and found out that we had much more than that.

* * *

   Q. Wasn't the principal focus of concern on the fact that since the * * * loan had not been participated or sold and since it was still in the Bank, an overline with regard to Mr. * * * had been created and that you were trying to find out what had happened?
   A. Mr.—to answer your question, if it was a loan, you didn't need to mention Regulation O or 12 U.S.C. 84 or any other provision or law or regulation to me, I knew it was over the line if it was a loan. If that's what you want from, yes me, if it was a loan, there is no question in my mind that it was over the line and I don't think there was any disagreement between Mr. * * * and me about that.
   Q. Mr. * * * , though, told you—or the other people present—that he had contact- {{4-1-90 p.A-871}}ed somebody at the state and the state representative had indicated that it wasn't a loan, [but that] it was an investment?
   A. That it qualified as an investment.
   Q. Isn't it true that there was no mention at that meeting, though —there was no confrontation on your part, [of] Mr. * * * , as to what happened to the $2,000,000 participation commitment?
   A. Mr. * * *—
   Q. Isn't that true?
   A. Well, yes and let me tell you why it's true. I wasn't going to get into a knock down drag out with * * * about misrepresentation he had made to me and other members of the Board in the presence of the Bank examiners. This is the entire matter. I don't think that I want to discuss all the Bank's business in the presence of the bank examiners—not that there's anything to hide, but a lot of things are none of their domn business. But, Mr. * * * , for your further information, took plenty of heat as a result of that thing, not just from me, but not in the presence of any bank examiners or any person outside the Bank. [Emphasis added.]
   The failure of either Respondent * * * or Respondent * * * to take any exception to the alleged misrepresentation of Mr. * * * in the presence of FDIC examiners, who seemingly had exposed the "reality" of such misrepresentations for the first time, betrays a lack of any genuine reliance or sincere expectation of Respondents * * * or * * * regarding the participations allegedly proposed by Mr. * * *.
       (c) * * * is a "related interest" of Respondent * * * and the loans to * * * were not secured by certificates of deposit
   Respondent * * * contends that * * * is not his "related interest" within the meaning of Regulation O and that loans totaling $275,000 to * * * were improperly aggregated with his other outstanding debt to the Bank. This argument is discussed incidental to the discussions of the violations of Regulation O pertaining to Respondent * * * infra. at pp. 58–65. Substantially the same evidence and principles discussed regarding the violations of Respondent * * * resulting from extensions of credit to * * * are equally applicable to Respondent, * * * (Pr.Ex.52/3-5)

   Similarly, the issues concerning the treatment of three certificates of deposit of * * * as collateral security for loans to * * * are also addressed incidental to the discussion of violations of Regulation O pertaining to Respondent * * * , infra. at pp. 65–70. It should be noted, however, that since all of the violations of Regulation O pertaining to Respondent * * * involve violations of the 25 percent secured lending limit the issue of whether the * * * loans were "secured" by certificates of deposit is essentially academic. Even if such loans were held to be "secured" for purposes of Regulation O, the continuing violation by Respondent * * * would not be eliminated. The same result would also occur even if the * * * loans were excluded from the aggregate credit extended to Respondent * * * pursuant to 12 U.S.C. § 84(c)(6); at the time of the * * * loans (which totaled $275,000), the total aggregate of credit of Respondent * * * exceeded the Bank's secured/unsecured lending limit by $1,930,331 (Pr.Ex. 63/2(In.71), 55).
       2. Violations of Regulation O by Respondent * * *
   As in the case of the various events and factual circumstances pertaining to violations of Regulation O by Respondent * * * discussed previously (supra. at pp. 45–46), it was stipulated by Respondent * * * pro se that all of the factual information regarding the transactions and events reflected in FDIC Exhibit 25 are accurate and are not in dispute (Tr. 214–215). FDIC Exhibit 25 is a composite exhibit which summarizes all of the transactional information contained in 27 FDIC exhibits (Pr.Ex. 3A, 8–18, 20–22, 24, 32A, 34, 37, 46, 53-54, 62A, 66, 70A, 70B), and shows a complete chronology of all transactions and events that gave rise to this action against Respondent * * * by detailing such extension of credit involving Respondent * * * that caused, continued, increased, reduced, or eliminated the violations in dispute; that exhibit also shows the context of continuing events during which such extensions of credit occurred. Accordingly, the same 8 categories of information stipulated as accurate with respect to FDIC Exhibit 63 regarding Respondent * * * (supra, p. 46) have been stipulated as accurate by Respondent * * * with respect to FDIC Exhibit 25.
   In view of the stipulation and the fact that all of the events and loan transactions involving Respondent * * * have been de- {{4-1-90 p.A-872}}tailed previously in narrative form in Proposed Findings of Fact 1 through 24 and 59 through 73 (supra. at pp. 5-9 and 16-19), it is not necessary to engage in further discussion of such events and transactions here. There is a clear preponderance of evidence in the record to support the alleged violations of Regulation O pertaining to Respondent * * * if it can be further demonstrated that the arguments and contentions raised by Respondent * * * in defense of such alleged violations are without merit.
   The arguments of Respondent * * * raised in defense of his alleged violations are essentially five in number and can be categorized as follows: (a) * * * is not a "related interest" of Respondent * * * therefore, loans to * * * are not attributable to Respondent * * * under Regulation O; (b) assuming, arguendo, * * * is a "related interest" of Respondent * * * the loans to * * * , were secured by certificates of deposit and, therefore, were excludable from the lending limit prohibition of Regulation O; (c) assuming, arguendo, * * * is a "related interest" of Respondent * * * , the loans to * * * , were never fully funded by the Bank; therefore, the unfunded portions were improperly included as extensions of credit under Regulation O; (d) assuming, arguendo * * * is a "related interest" of Respondent * * * loans made to * * * (as well as all others involving Respondent * * * were "secured" by virtue of the power of the Bank to exercise a right of setoff in the event of default of such loans; therefore, such loans were subject to the higher secured lending limit of Regulation O; and (e) assuming, arguendo, * * * is a "related interest" of Respondent * * * , numerous loans involving Respondent * * * were "secured" by pledges of real property or stock in * * * therefore, such loans were subject to the higher secured lending limit of Regulation O (Pr.Ex. 70A, 70B). Each of these contentions is discussed below.
       (a) * * * is a "related interest" of Respondent * * * (and Respondent * * * within the meaning of section 215.2(k) of Regulation O)
   It is not disputed that Respondents * * * and * * * each own 20 percent of the outstanding voting stock of * * * and that both are directors of * * * (* * * , Tr. 499, 513-514). As discussed previously (supra. at pp. 30-31), the term "related interest", as used in the lending limit prohibition of section 215.4(c) of Regulation O (12 C.F.R. § 215.4(c)), is defined in section 215.2(k) of Regulation O (12 C.F.R. § 215.2(k)) as a "company that is controlled by a person". The terms "company" and "controlled by a person" are defined in sections 215.2(a) and (b) of Regulation O (12 C.F.R.§§ 215.2(a) and (b)). The latter definition of "controlled by a person" includes a provision in section 215.2(b)(2) which essentially states that where a person who owns more than 10 percent of the stock of a company is also a director of that company, such company will be presumed to be "controlled" by that person for purposes of Regulation O. Accordingly, there is a legal presumption of control of * * * by Respondents * * * and * * * for purposes of determining whether * * * is their "related interest" within the meaning of section 215.2(k) of Regulation O.
   In the absence of any effective rebuttal of such presumption by Respondents * * * and * * * , it must be concluded that * * * is their "related interest" as a matter of law (12 C.F.R. § 215.2(b)(2).) In an effort to rebut the presumption of control established by section 215.2(b)(2) of Regulation O, Respondent * * * testified to the effect that he does not regularly attend meetings of the board of directors * * *; that he is only one of four directors of * * *; that two of the other directors of * * * have larger ownership interests in * * *; that he is not actively engaged in the management of the business of * * *; that he has no authority to borrow money on behalf of * * *; that the only other position he holds in * * * , other than that of director is corporate secretary; and that he serves as corporate secretary of * * * "primary for the purpose of attesting signatures" (* * * Tr. 499–501, 508-5100).
   The self-serving testimony of Respondent * * * was the only evidence offered by Respondent * * * to rebut the legal presumption of his control of * * *. Thus, the sworn testimony of other disinterested officers of directors* of * * * was not offered concerning Respondent * * * relationship with * * * and/or the degree of influence Respondent * * * exercised regarding the management, operations and policies of * * * and no documentary evidence (such

* Two former directors of * * * are dead, one of whom died more than 2 years ago (* * * , Tr. 499).
{{4-1-90 p.A-873}}as minutes of meetings of the board of directors of * * * , minutes of shareholders meetings of * * * , correspondence of * * * etc.) was offered by Respondent * * * in sustaining his burden of overcoming the legal presumption that * * * is his related interest. In this regard control may be shared and still amount to a related interest under Regulation O.
   The burden of proof generally has two elements: (1) the burden of producing evidence, and (2) the burden of persuading the fact-finder. Abilene Sheet Metal, Inc. v. N.L.R.B., 619 F.2d 332 (5th Cir. 1980). Where a legal presumption is established based upon public policy, the party against whom the presumption operates must satisfy both elements to successfully overcome the presumption. Psaty v. U.S. .., 442 F.2d 1154 (3rd Cir. 1971).
   Accordingly, in order to overcome and effectively rebut a presumption of fact, such as control, Respondent * * * must demonstrate and otherwise undertake the proof of the nonexistence of such fact by a preponderance of persuasive evidence; it is insufficient merely to assert that such fact does not exist. In the present case, however, the only evidence offered by Respondent * * * to rebut the presumption of his control of * * * was his own naked assertion that such fact does not exist.
   In the case of Respondent * * * , it is significant that no evidence or testimony was offered to rebut the presumption of his control of * * * established pursuant to section 215.2(b)(2) of Regulation O. No documentary evidence was offered, and neither Respondent * * * nor any other witness testified regarding Respondent * * *'s relationship with * * * vis-a-vis the presumption that * * * is his related interest. Accordingly, FDIC submits that this issue has been abandoned by Respondent * * *.
   Even assuming, arguendo, that the testimony of Respondent * * * is accepted as evidence which tends to overcome the presumption that * * * is his related interest, there is other evidence and testimony offered by FDIC which discounts the probative value of the declarations offered by Respondent * * *. For example, FDIC Examiner * * * met with Respondents * * * and * * * in the presence of Mr. * * * at the conclusion of the 1984 FDIC examination of the Bank on November 5, 1984, and engaged in a protracted three-hour discussion of the results of the FDIC examination and the numerous violations of Regulation O which are the subject of this action, including the violations by Respondent * * * that occurred as a result of loans totaling $275,000 made to * * * (* * * , Tr. 228-233, 238-245).
   The evidence indicates that while Respondent * * * took exception to certain other aspects of the violation resulting from the * * * loans (* * * , Tr. 230-231, 233, 238, 240), Respondent * * * did not contest or otherwise deny that * * * was his related interest as concluded by FDIC Examiner * * * in aggregating the total credit extended to * * * with other credit extended to Respondent * * * for purposes of Regulation O (* * * , Tr. 229, 232). The failure of Respondent * * * to deny or otherwise express any objection to the conclusion that * * * was his related interest at the November 5, 1984 meeting was corroborated by Mr. * * * (* * * , Tr. 489), and was admitted by Respondent * * * (* * * , Tr. 508, 548).
   It should be noted also that Respondent * * * totally failed to take any issue with the proposition that * * * was his related interest in either of his letter responses, dated February 19 and March 4, 1985, to the FDIC notification of February 1, 1985 regarding the possible imposition of a civil money penalty for violations of Regulation O (Pr.Ex. 66, 70A, 70B). In short, Respondent * * * never denied that * * * was his related interest until October 17, 1985 (Rs.Adm. 3(a)). This does not suggest that Respondent * * * is legally estopped from denying that * * * is his related interest; however, evidence of repeated failures of Respondent * * * to express any denial of such fact on those occasions where a denial (or at least an objection) would otherwise appear warranted is clearly inconsistent with the testimony offered by Respondent * * * in rebuttal of the presumption of his control of * * *. Such evidence of prior failures of Respondent * * * to deny that * * * was his related interest undermines the credibility of the inconsistent rebuttal testimony of Respondent * * * and sharply reduces the weight to be accorded such evidence.
   Evidence in the record pertaining to issue of whether * * * is a related interest of {{4-1-90 p.A-874}}Respondent * * * is contained in a written statement signed by Respondent * * * on November 20, 1984, wherein * * * is specifically identified as a "related interest" of Respondent * * * (Pr.Ex. 8/61C). The signed statement of Respondent * * * was requested by FDIC Examiner * * * during the conduct of the 1984 FDIC examination of the Bank when he determined that statements of related interests of the officers, directors and principal shareholders of the Bank (which are required to be filed by section 215.7 of Regulation O (12 C.F.R. § 215.7) were not in the files of the Bank (* * * , Tr. 218–219). In accordance with instructions given by FDIC Examiner * * * , the Bank addressed a written request on November 7, 1984 to all persons required to file a statement of related interests, including Respondent * * * , wherein specific references were made to applicable sections of Regulation O defining the terms "company", "control of a company" and "related interest", as those terms are defined in sections 215.2(a), (b) and (k), respectively, of Regulation O (Pr. Ex. 8/61B).
   As counsel for the Bank and an attorney in the active practice of law (* * * , Tr. 515), the conclusion is drawn that Respondent * * * should have known what he was doing when he responded to the Bank's request and signed a statement on November 20, 1984 specifically indicating that * * * was his related interest.
   Finally, it should be noted that the "explanation" offered by Respondent * * * concerning his signed statement is flawed and is contradicted by the evidence, including his own testimony. During the course of Mr. * * * cross-examination, Respondent * * * interjected a stipulation explaining his signed statement acknowledging that * * * was his related interest (Tr. 492-493):
       Your Honor, I'll stipulate—let's cut this short, if we can, I'll stipulate that I and Mr. * * * and every other director in that Bank listed everything that we owned any interest in as far as we know. That was what we wanted and it's there and it's in evidence and it will be discussed some more. I'm certain, but yes, there is a signature saying what you own an interest in. I will not stipulate that that makes it a related interest within the meaning of law or regulation, but yes, the thing exists. And, if I'm asked again to— which I will be, I'm certain, by Mr. * * * to furnish him a list of anything that I have an interest in —and that's the way it was put —I will do again, but that won't make it a related interest within the meaning of law or regulation—with that, we've got it. [Emphasis added.]
   Respondent * * * presently explains on that his signed statement represented a list of "everything that he owned or had an interest in that may possibly do business with the bank" (Supp. Brief of Respondents, page 4). I accept the sincerity of his statement. However, * * * clearly was under his shared dominion, importantly for the purpose of opting for a loan from the Bank.
       (b) The extensions of credit to * * * were not secured by certificates of deposit Section 84(c)(6) of the National Bank Act (12 USC § 84(c)(6)) provides:
       Loans or extensions of credit secured by a segregated deposit account in the lending bank shall not be subject to any limitation based on capital and surplus.
   Respondent * * * argues (Pr.Ex. 70A/3) that two loans to totaling $275,000 (* * * , Tr. 217-218, 233; Pr.Ex. 25/1(In.26,33), 8/59-61C, 9) were secured by three certificates of deposit totaling approximately $180,000 (* * * , Tr. 510, 550-551; Rs.Ex. 5). [The certificates of deposit which Respondent * * * contends were pledged to secure the * * * debt should not be confused with a certificate of deposit of approximately $12,000 that was pledged to secure other debt of Respondent * * * such certificate of deposit later matured and was deposited in his checking account (* * * , Tr. 237-244; Pr.Ex. 8/10, 25/1(In. 16–17)).]
   The evidence and testimony clearly demonstrate that the certificates of deposit in question were not pledged, but were held by the Bank for safekeeping only (* * * , Tr. 233-235, 244-245; * * * Tr. 482, Pr.Ex. 9/3). There was no security or collateral shown on the face of the $210,000 note of * * * (* * * Tr. 236-237; Pr.Ex. 9/2) The extension of credit in the amount of $65,000 was a letter of credit, and there was no mention or reference to a security interest in any collateral (Pr.Ex. 8/60). Further, it is significant that the present chief executive officer of the Bank testified that the Bank "did not have a pledge" of the certificates of deposit in question; that such certificates were held by the Bank for "safekeeping only"; and that the Bank did not have any procedures that would have precluded {{4-1-90 p.A-875}}an authorized representative of * * * from taking such certificates out of the Bank (* * * , Tr. 454, 482-483).
   The law of the State of * * *; also appears to make it clear that the Bank not have a security interest in the * * * certificates of deposit * * * has adopted the Uniform Commercial Code ("UCC"). Article 9 of the UCC (section 11-9-101, et seq., Official Code of * * * Annotated ("* * *")) governs secured commercial transactions in which the parties intend to create a security interest in personal property such as a certificate of deposit. Section 9-203 of the UCC (§ 11-9-203, * * *) requires that three conditions must be satisfied before a security interest in collateral will be recognized: (a) the secured party must have possession of the collateral pursuant to an express agreement of the parties or there is an executed security agreement describing the collateral and granting a security interest therein; (b) value has been exchanged; and (c) the debtor has acquired rights in the collateral.

   [.20] Perfection of a security interest under the Uniform Commercial Code is achieved one of three ways, depending upon the type of personal property involved: (a) perfection by possession; (b) automatic perfection (by attachment alone); and (c) perfection by filing. (§§ 11-9-302, 11-9-304 and 11-9-305, * * *) Accordingly, it is necessary to determine the treatment of certificates of deposit under the Uniform Commercial Code in order to determine the proper method of perfection of a security interest in such collateral. Section 9–105(e) of the UCC specifically excludes a "certificate of deposit" from the definition of a "deposit account":

       "Deposit account" means a demand, time, savings, passbook or like account maintained with a bank, savings and loan association, credit union, or like organization, other than an account evidenced by a certificate of deposit that is an instrument within this article. (§ 11-9-105(e), OCGA) [Emphasis added.]
   The term "instrument" is defined in section 9–105(i) of the UCC;
       "Instrument" means a negotiable instrument (defined in Code § 11-3-104), or a security (defined in Code § 11-8-102) or any other writing which evidences a right to a payment of money and is not itself a security agreement or lease and is of a type which is in the ordinary course of business transferred by delivery with any necessary endorsement or assignment. (§ 11-9-105(i), OCGA) [Emphasis added.]
   It is clear, therefore, that a certificate of deposit is treated as an "instrument" under the Uniform Commercial Code in * * * Further, such treatment will be accorded even though the certificate of deposit is in non-negotiable form. See, First National Bank in Grand Prairie v. Lone Star Life Ins. Co., 524 S.W. 2d 525 (Tex. App. 1975).

   [.21] Section 9-304(1) of the UCC provides that a security interest in "instruments" can be perfected only by possession:

       A security interest in money or instruments (other than instruments which constitute part of chattel paper) can be perfected only by the secured party's taking possession, except as provided in subsections (4) and (5) of this Code section and subsections (2) and (3) of Code section 11-9-306 on proceeds. (§ 11-9-304(1), OCGA) [Emphasis added.]
   None of the exceptions cited in section 9304(1) are applicable in the present case. Accordingly, the only manner in which a security interest in the * * * certificates of deposit could have been perfected by the Bank was by taking possession of such certificates pursuant to an agreement between the Bank and * * *, (§ 11-9-203, * * *).
   Applying the foregoing principles to the present case, there is little doubt that the Bank did not have a perfected security interest in any of the certificates of deposit held for safekeeping with regard to either the $65,000 letter of credit issued to * * * (Pr.Ex. 8/60) or with regard to the $210,000 loan to * * * (Pr.Ex. 9/2). The $65,000 letter of credit to * * * is clearly unsecured; there is no language within the instrument that mentions a security interest in any collateral. With regard to the $210,000 loan to * * * the note contains the following provisions under the heading "Security Interest":
       Borrower grants to the Bank a security interest under the Uniform Commercial Code of * * * in any account borrower has now or may hereafter have with the Bank and in the following property (hereinafter referred to as "collateral"):
{{4-1-90 p.A-876}}The quoted language specifically refers to the grant of a "security interest" in any "deposit account" of the borrower; however, no specific "collateral" is identified in the note. Accordingly, the most favorable interpretation is that a security interest is granted to the Bank in "deposit accounts" of * * * in the Bank. As previously discussed, however, it is clear that under the Uniform Commercial Code in * * * certificates of deposit are excluded from the definition of "deposit accounts" and are deemed to be "instruments" (§11-9-105(i), * * *); and under the provisions of sections 11-9-203 and 11-9-304(1) of the UCC (§§11-9-203 and 11-9-304(1), * * *), a security interest can be perfected in an "instrument" only by the grant of possession to the secured party pursuant to a written agreement.
   As mentioned, the * * * certificates of deposit were held by the Bank for safekeeping only. (* * * , Tr. 233-235, 244-245; * * * , Tr. 482; Pr.Ex. 9/3) The Uniform Commercial Code in * * * does not specifically define or otherwise characterize the effect of collateral held for "safekeeping". The term is defined in Webster's Ninth New Collegiate Dictionary, Merriam-Webster, Inc. (1983), as "the act or process of preserving in safety". FDIC states that a certificate of deposit held by the issuing bank for safekeeping in * * * is the equivalent of a specialized form of bailment known as a "deposit" bailment, which is defined in section 44-12-90(1) of the Official Code of *** Annotated (§44-12-90(1), * * *) as "the delivery of chattels by one person to another to keep for the use of the bailor." According to FDIC, deposits can be either for hire where compensation is paid in exchange for the safekeeping or (as in the present case) a "naked deposit" where the property is held for safekeeping gratuitously (§§44-12-90(2) and 44-12-90(3), * * *). FDIC, thus, asserts that only use permitted of property held in a "deposit" bailment is for the limited purpose of preservation of the property absent the depositor/bailor's consent. (§44-12-95, * * *) According to FDIC, authorities have accorded this relationship with such sanctity that "deposit" bailees have been held uniformly to be estopped from challenging the bailor's ownership of the bailment property and right to repossess the property in the absence of a bailor's lien for unpaid storage fees or similar contract right to payment of a charge. See, 8 Am.Jur. 2d §88 Bailments, 823. In the present case, it is undisputed that the chief executive officer of the Bank clearly understood that the certificates of deposit in question were not "pledged" to the Bank (* * * , Tr. 454), and that * * * (as the depositor/bailor had the clear ability to remove the certificates of deposit from the Bank to the extent that the Bank had no procedures to prevent such removal from the Bank (* * * , Tr. 482-483, Pr.Ex. 9/3-4).
    (c) The amount of credit actually funded by the Bank is irrelevant for purposes of determining the amount of credit extended by the Bank to * * * under Regulation O

   Respondent * * * contends that since the total amount of credit extended to * * * that was actually funded by the Bank equaled $145,000, only that amount of credit and not the aggregate of $275,000 alleged by the FDIC should be utilized in determining the amount of credit extended to * * * , for purposes of Regulation O (* * * , Tr. 507; Pr.Ex. 70A/3). This argument is in error and is flatly contradicted by the express provisions of section 215.3(a)(3) of Regulation O (12 C.F.R. §215.3(a)(3):

    An extension of credit is a making or renewal of any loan, granting of a line of credit, or extension of credit in any manner whatsoever, and includes:
    * * *

    Issuance of a standby letter of credit (or other similar arrangement regardless of name or description). . .[Emphasis added.]

   FDIC Examiner * * * and FDIC Assistant Regional Director * * * both expressed the expert opinions that the entire amount of a letter of credit or loan commitment is included for purposes of Regulation O and not merely the funded portion of such credit (* * * , Tr. 261-262; * * *, Tr. 347). The Bank's chief executive officer agreed when he testified that the entire amount of a loan commitment is properly used for purposes of calculating the maximum amount of credit that can be extended under Regulation O (* * * Tr. 479-480).
    (d) The right of setoff of the Bank is not equivalent to a "security interest" in certificates of deposit held by the Bank for safekeeping.

   Respondent * * * argues that even if it were determined that the Bank failed to perfect a security interest by obtaining a {{4-1-90 p.A-877}}formal pledge of certificates of deposit of * * * the Bank's right of setoff against such deposits in the event of a default of the, * * * debt was tantamount to a security interest for purposes of applying the "secured" lending limit of Regulation O (Pr.Ex. 70A/3). This contention fails when tested by applicable law.

   [.22] Setoff is well recognized common law concept and is rooted in ancient Roman law. See, Automatic Extension of Cross Demands: Compensation from Rome to California. 53 Calif. L. Rev. 224 (1965). In a banking context, certain requirements must be present before setoff may be exercised. Funds deposited in the bank must be owned by the depositor (American Trust & Banking Co. v. Boone, 29 S.E. 182 (Ga. 1897); and Citizens & Southern Nat. Bank v. Avco Financial Services, Inc., 200 S.E.2d 309 (Ga. App. 1973)); the deposit must create a valid debtor-creditor relationship between the bank and depositor (Darien Bank v. Clifton, 118 S.E. 641 (Ga. 1923); and American Surety Co. of New York v. Peoples Bank, (189 S.E. 414 (Ga. App. 1937)); there must be a mutuality of indebtedness between the bank and the depositor; and the debt of the depositor to the bank must be in default or otherwise due and owing (Cotton States Mutual Ins. Co. v. Citizens & Southern Nat. Bank, 308 S.E. 2d 199 (Ga. App. 1983)). See also, Friedland Properties, Inc. v. Citizens & Southern Nat. Bank, 251 S.E.2d 143 (Ga. App. 1978); First Nat. Bank of Gainesville v. Appalachian Industries, Inc., 247 S.E. 2d 422 (Ga. App. 1978); and Citizens & Southern Nat. Bank v. Weyerhauser Co. 262 S.E. 2d 485 (Ga. App. 1979). There is no evidence in the record that the last of these requirements has been satisfied.
   While the right of setoff is recognized in * * * as a common law right, it is not recognized as a "security interest", according to FDIC. As discussed earlier (supra, at pp. 66–70), a security interest in personal property is governed by Article 9 of the * * * UCC; however, section 9–104(g) of the UCC (§11-9-104(g), * * *) expressly excludes the right of setoff from Article 9 coverage. Continental American Life Ins. v. Griffin, 306 S.E. 2d 285 (Ga. 1983). This is a logical exclusion since setoff is not based on contract or consent, both of which are essential elements to the perfection of a security interest. (§§11-9-102(1)(a) and 102(2), * * *), See also, Gilmore, Security Interest in Personal Property, §10.7 at 315-316 (1965). Notwithstanding the exclusion of setoff from Article 9 of the UCC, according to FDIC, * * * Courts have construed section 9–104(g) of the UCC (§11-9-104(g), * * *) as merely excluding the necessity of banks to comply with Article 9 perfection requirements in order to create a right of setoff. Nonetheless, the courts in * * * have held consistently that the UCC is applicable in resolving controversies between a holder of a perfected security interest and a bank attempting to exercise a right of setoff. Continental American Life Ins. v. Griffin, supra, at 287. See also, Citizens National Bank of Whitley County v. Mid-States Development Co., 380 N.E.2d 243 (Ind. App. 1978).
   In Griffin, the * * * Supreme Court held that a perfected security interest in certain commissions was superior to a competing claim for the same funds based upon the right of setoff. (Id. at 287.) The court relied on section 9–201 of the UCC (§11-9-201, * * *) which states:

    Except as otherwise provided by this title, a security agreement is effective according to its terms between the parties, against purchasers of the collateral, and against creditors. . .

   The statute was construed as giving priority to the secured party, over "anyone, anywhere, anyhow". . .(Id. at 287.) See also, The Priority Rules of Article Nine, 62 Cornell L. Rev. 834, 842 (1977); and J. White and R. Summers, Handbook of the Law Under Uniform Commercial Code (1972) at 901.
   In United States v. Sterling National Bank & Trust Co., 360 F.Supp. 917 (S.D.N.Y. 1973), aff'd in part and rev'd in part 494 F.2d 919 (2nd Cir. 1974), the Second Circuit Court of Appeals held that an unexercised right of setoff is only an inchoate right:
    The choateness rule requires that the private lien [based on the right of setoff] be perfected in the sense that there is nothing more to be done. This required absolute certainty (1) as to the identity of the lienor, (2) as to the property subject to the lien, and (3) as to the amount of the lien, United States v. City of New Britain, 347 U.S. 81, 84.
{{4-1-90 p.A-878}}
    Not until the bank exercised its right of setoff and determined the current balance of the checking account and the unpaid balance of the loan had it met these prerequisites and perfected its lien in the sense that there was nothing further to be done. (Id. at 924–925).

   Since the Bank's right of setoff was unexercised in that there was no mature or past due debt owed to the Bank by * * * , the Bank had only an inchoate right which was subject to being subordinated to a junior position upon perfection of a security interest in the * * * certificates by a third party. In this regard, conflicting opinion testimony was offered at the hearing regarding the possibility of a secured interest being created and perfected in the * * * certificates of deposit by a third party even though the Bank held such certificates for safekeeping. Mr. * * * expressed the opinion that a security interest could be perfected under certain circumstances (* * * , Tr.300–302); however, Mr. * * * expressed a contrary opinion (* * * Tr. 456-457). The law in * * * regarding perfection of a security interest in certificates of deposit held by a bailee apparently supports Mr. * * *'s opinion. Section 9-305 of the UCC (§11-9-305, * * *) provides:
    A security interest in letters of credit and advises of credit (subsection(2)(a) of Code section 11-5-116), goods, instruments, money, negotiable documents or chattel paper may be perfected by the secured party's taking possession of the collateral. If such collateral other than goods covered by negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives notification of the secured party's interest. [Emphasis added.]

   The inchoate right of setoff of the Bank, therefore, can be defeated by a perfected pledge of the * * * certificates of deposit to a third party for value, such as to another bank is collateral for a loan. As soon as the Bank receives notification from such third party (the other bank) of that party's security interest in the certificates of deposit, that party's security interest in the certificates is perfected and is superior to the Bank's inchoate right of setoff.
   Finally, the effect of an "insecure clause" in the Bank's loan agreement, as a default catalyst, was raised as a collateral issue during the hearing (* * * , Tr.305-306). [FDIC notes that none of the exhibits offered by Respondents reflect the language of the "insecure clause" used by the Bank.] "Insecure clauses" according to FDIC, are upheld in * * * where there is a lawful binding contract permitting declaration of default when a creditor deems himself insecure; however, such provisions are subject to a good faith requirement provided in section 1-203 of the UCC (§11-1-203, * * *). First National Bank of Gainesville v. Appalachian Industries, Inc., 247 S.E.2d 422, 425 (Ga. App. 1978). FDIC concedes that while it might be theoretically possible for the Bank to "deem itself insecure", accelerate maturity, declare default, and exercise its right of setoff upon receipt of notification from a third party of a pledge of the * * * certificates, the Bank could not have in fact taken such action in good faith, as required by section 1-203 of the UCC. There are no facts in evidence which even remotely suggest that the Bank could have taken such action with regard to the * * * debt. On the contrary, the evidence clearly indicates that the Bank has never believed that it was "insecure" as to any extension of credit involving the Respondents (* * * , Tr. 460).
   In summary, the right of the Bank to exercise setoff is only an inchoate right, and as such cannot be deemed to be the equivalent of a "security interest" for purposes of applying the secured lending limit of Regulation O. [FDIC notes parenthetically that to conclude otherwise would have the curious effect of precluding the application of the unsecured lending limit of Regulation O to any loan made by the Bank since all of the Bank's note forms include an "insecure clause" and a right of setoff against the borrower.]
    (e) Loans secured by real estate or unlisted securities in closely held corporations are not "secured" within the meaning of Regulation O

   Respondent * * * argues that a substantial portion of the aggregate amount of credit extended indirectly to him (i.e., those credits on which Respondent * * * is liable as endorser or guarantor) were secured by deeds to secure debt upon real estate or, in the case of the * * * debt, was secured by stock in closely held corporations such as * * * (Pr.Ex. 70A/1-3, 70B/1-2). As previously discussed (supra. at pp. 27-28), Part 32 of the regulations of the Comptroller of the Currency (12 C.F.R. Part 32) imple- {{4-1-90 p.A-879}}ments the lending limit provided in 12 U.S.C. §84, which is incorporated by reference in section 215.4(c) of Regulation O. Section 32.4(b) of the regulations of the Comptroller of the Currency (12 C.F.R. §32.4(b)) provides in part:

    Compliance with section 84(a)(2). Each loan or extension of credit based on the foregoing limitation [viz., loans or extensions of credit subject to the "secured" lending limit] shall be secured by readily marketable collateral having a current market value of at least 100 percent of the amount of the loan or extension of credit at all times. [Emphasis added.]

   The terms "current market value" and "readily marketable collateral", as used in section 32.4(b), are defined in the second sentence of that regulation and in the first sentence of section 32.4(c) (12 C.F.R. §32.4(b) and (c) as follows:
    "Current market value" means the bid or closing price listed for an item in a regularly published listing or in an electronic reporting service.
       "Readily marketable collateral" means financial instruments and bullion which are salable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions on an auction or a similarly available daily bid and ask price market.

   The term "financial instruments", as used in the above definition of "readily marketable collateral", is defined in the second sentence of section 32.4(c):
    "Financial instruments" include stocks, notes, bonds, and debentures traded on a national securities exchange, "OTC margin stocks" (as defined in Regulation U of the Federal Reserve Board), commercial paper, negotiable certificates of deposit, bankers' acceptances, and shares in money market and mutual funds of the type which issue shares in which banks may perfect a security interest.

   Conspicuously absent from the foregoing definition of eligible collateral for loans subject to the "secured" lending limit of Regulation O is real estate. The omission of real estate is consistent with the plain meaning of the statutory requirements that the collateral be "readily marketable" and have a market value determined by "reliable and continuously available price quotations". Simply stated, real estate cannot satisfy such requirements. Accordingly, the testimony of FDIC Assistant Regional Director * * * on direct examination (Tr. 334) was not surprising:
    Q. In all of your experience as an examiner with FDIC and as a supervising official in the FDIC, how many instances have you seen an FDIC examiner treat a real estate security loan as "secured" for purposes of applying the secured lending limit under Regulation O?
       A. Never.

   Nor it surprising that Mr. * * * testimony was corroborated by the other three FDIC examiners who testified on the same subject (* * * , Tr. 40–41; * * * , Tr. 113–114; * * * , Tr. 230–231). Similarly, the stock of a closely held corporation such as * * * does not satisfy the criteria for collateral contemplated by 12 U.S.C. §84(a)(2) and its implementing regulation, 12 C.F.R. §34.2 (* * * , Tr 231; * * * , Tr. 332–333). As late as February 19, 1985, Respondent * * * expressed agreement when he conceded in a letter to the FDIC that * * * stock did not have any "readily determinable value" (Pr.Ex. 70A/1). In an apparent attempt to reverse his position on this issue, the opinion testimony of Mr. * * * was offered by Respondent * * * in support of the proposition that * * * stock was capable of "reliable and continuously available price quotations", as required by 12 U.S.C. §84. On cross examination, however, Mr. * * * readily acknowledged that he could not give a "price quotation" regarding the value of * * * stock since he was not a registered securities dealer, but only a "licensed real estate broker" (* * * Tr. 381–382); and that any opinion he might have regarding the value of real estate might vary with other licensed real estate brokers by as much as "10 percent" (* * * , Tr. 385). Accordingly, it is clear that the opinion of Mr. * * * regarding the value of * * * stock is not "reliable" or the equivalent of quotations "based on actual transactions on an auction or a similarly available daily bid and ask price market", as contemplated by 12 U.S.C. §84(a)(2). In short, Mr. * * *'s opinion regarding the value of * * * stock was nothing more than an informed appraisal of * * *'s principal asset (* * * Tr. {{4-1-90 p.A-880}}399-401), and does not satisfy the provisions of the statute, apart from regulations contained in 12 C.F.R. §32.4(c). In this regard, the * * * loans was made on June 20, 1984, and C.F.R. §32.4(c) apparently was adopted not much more than a year earlier on April 14, 1983. As a result, there was some unfamiliarity with that regulation, but I do not find that circumstance sufficient to excuse the * * * loan.

   D. The Amounts of the Civil Money Penalties Sought by the FDIC Against Respondents are Supported in Law and Fact

    1. Consideration of Statutory Factors and Implementing Interagency Statement of Policy

   As noted previously (supra, at p. 32), section 18(j)(3)(A) of the Act (12 U.S.C. §1828(j)(3)(A)) authorizes the FDIC to impose a civil money penalty in the amount of $1,000 per day for each day during which a violation of section 22(h) of the Federal Reserve Act (12 U.S.C. §375b) or Regulation O (12 C.F.R. Part 215) continues and remains uncorrected. It is significant that the enabling statute does not specify any particular state of mind (e.g., willful) that must be established as a predicate to the imposition of a civil money penalty. On the contrary, section 18(j)(3)(A) of the Act only requires a showing that there has been a violation of law or regulation. The statute continues not by limiting the definition of the term "violate", but by expanding its scopes and meaning to include "any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation" (12 U.S.C. §1828(j)(3)(A)).
   The plain meaning of section 18(j)(3)(A) is consistent with the legislative history of that statute. By authorizing civil money penalties for each day a violation continues, Congress provided a powerful inducement for persons who violate the law to take immediate corrective action and effectively empowered the FDIC to penalize the failure of such persons to take such corrective action. This is the "self-enforcing effect" that Congress intended. [See discussion, supra, at p. 34] The sanctions proposed by the FDIC in the imposition of civil money penalties against Respondents * * * and * * * for each day their violations of Regulation O continued and remained uncorrected are proper unless it can be demonstrated that such sanctions are unwarranted in law or without justification in fact. Carter v. Securities Exchange Commission, 726 F.2d 472 (9th Cir. 1983).

   [.23] Section 18(j)(3)(B) of the Act (12 U.S.C. §1828(j)(3)(B) requires that certain factors be considered by the FDIC when it imposes civil money penalties for violations of section 22(h) of the Federal Reserve Act (12 U.S.C. §375(b) or Regulation O (12 C.F.R. Part 215) promulgated thereunder:

    In determining the amount of the penalty the [FDIC] shall take into account the appropriateness of the penalty with respect to the size of the financial resources and good faith of the insured bank or person charged, the gravity of the violation, the history of previous violations, and such other matters as justice may require.

   In record of this action includes more than ample evidence to show that each of the statutory factors were considered by the FDIC in imposing civil money penalties against Respondents * * * and * * *. In this regard, and before the FDIC initiated formal action against Respondents * * * and * * * by issuing the Notices of Assessment. Respondents * * * and * * * were invited to submit any evidence or information in mitigation of the assessment of possible civil money penalties (* * * Tr. 330-331; Pr.Ex. 66, 67). The replies of Respondents * * * and * * * (Pr.Ex. 70A, 70B, 72) were also considered by the FDIC (* * * Tr. 331–337).
   The statutory factors in section 18(j)(3)(B) of the Act (12 U.S.C. §1828(j)(3)(B)) have been implemented by an interagency policy adopted by the FDIC and other Federal financial institutions regulatory agencies in 1980. The Interagency Policy Regarding the Assessment of Civil Money Penalties by the Federal Financial Institutions Regulatory Agencies (45 Fed. Reg. 59423, September 9, 1980) enumerates 13 different factors that may be relevant in considering the assessment of civil money penalties under section 18(j)(3)(A) of the Act (12 U.S.C. §1828(j)(3)(A)):
   1. Evidence that the violation or pattern of violations was intentional or committed with a disregard of the law or the consequences to the institution;
   2. The frequency or recurrence of violations and the length of time the violation has been outstanding;
{{4-1-90 p.A-881}}
   3. Continuation of violation after the respondent becomes aware of it, or its immediate cessation and correction;
   4. Failure to cooperate with the agency in effecting early resolution of the problem;
   5. Evidence of concealment of the violation, or its voluntary disclosure;
   6. Any threat of or actual loss or other harm to the institution, including harm to public confidence in the institution, and the degree of any such harm;
   7. Evidence that participants or their associates received financial or other gain or benefit or preferential treatment as a result of or from the violation;
   8. Evidence of any restitution by the participants in the violation;
   9. History of prior violations, particularly where similarities exist between those and the violation under consideration;
   10. Previous criticism of the institution for similar violations;
   11. Presence or absence of a compliance program and its effectiveness;
   12. Tendency to create unsafe or unsound banking practices or breach of fiduciary duty; and
   13. The existence of agreements, commitments or orders intended to prevent the subject violation.
   The record this action clearly demonstrates that the FDIC considered each of the foregoing factors in detail, and that adverse determinations were made in more than half of the 13 factors cited (* * * , Tr. 247-254; * * * , Tr. 337-338; Pr.Ex. 75A, 75B). Particularly, * * * and * * * , although men of high character according to my observation, cannot escape penalties on that account.
    2. Calculation of Penalties Sought by FDIC Against Respondents * * * and * * *

   The FDIC proposes to impose a civil money penalty in the amount of $30,800 against Respondent * * * for extensions of credit made to him and/or his related interests (* * * and * * *) in violation of Regulation O that continued and remained outstanding for the period between May 9, 1984 and March 12, 1985.
   The date of May 9, 1984 was selected as the beginning point of the period of time for which a civil money penalty should be imposed against Respondent * * * since, even though there had been prior notices and warnings by the FDIC regarding earlier violations of Regulation O, Respondent * * * was specifically put on notice and warned at a meeting of the board of directors of the Bank and FDIC representatives on May 9, 1984 that if his violations of Regulation O continued and remained uncorrected, the FDIC would seriously consider the imposition of a civil money penalty (* * * , Tr. 115; * * * , Tr. 339-341; * * * , Tr. 541). March 12, 1985 was the date when Respondent * * * responded to a notification letter from FDIC regarding possible imposition of a civil money penalty (Pr.Ex. 63/3(In.106), 72). Although the violations of Respondent * * * were not corrected until August 15, 1985, the date of March 12, 1985 was selected as the date of the end of the period for which a civil money penalty should be imposed in recognition of the right of Respondent * * * to contest the alleged violations and the fact that such right was effectively commenced on March 12, 1985.
   Accordingly, the proposed penalty against Respondent * * * is based upon the 308 days his violations of Regulation O continued between May 9, 1984 and March 12, 1985, and was calculated using the penalty of $1,000 per day authorized by section 18(j)(3)(A) of the Act (12 U.S.C. §1828(j)(3)(A) (* * * , Tr. 340-341; Pr.Ex. 63/2-3(1n.61-106), 53-62A, 65, 67, 71–72).
   In the case of Respondent * * * , the FDIC proposes to impose a civil money penalty in the amount of $14,800 for extensions of credit made to him and/or his related interest * * * in violation of Regulation O that occurred and remained outstanding from June 20, 1984 until November 15, 1984. [Although Respondent * * * was in violation of Regulation O on June 18, 1984, such violation was relatively minor [$608 overline (Pr.Ex. 25/1(1n.32), 8)] compared to his violation on June 20, 1984 [$210,608 overline (Pr.Ex. 25.1(1n.33), 9)] and may have resulted inadvertently.] Since Respondent * * * in his admitted capacity as a director of the Bank (* * * , Tr. 513), had clear knowledge of prior FDIC concerns and criticisms regarding the same type of violation of Regulation O incidental to extensions of credit to Respondent * * * (* * * , Tr. 350-353), and since Respon- {{4-1-90 p.A-882}}dent * * * was also present at the May 9, 1984 supervisory meeting where specific notice and warning was given by FDIC representatives concerning the possible imposition of civil money penalties for future violations of Regulation O (* * * , Tr. 115; * * * , Tr. 541), a penalty against Respondent * * * computed from the first day of his violation was considered appropriate (* * * Tr. 365-367).
   Accordingly, the proposed civil money penalty against Respondent * * * is based upon the 148 days his violations continued between June 20, 1984 and November 15, 1984 when they ceased, and was calculated using the $1,000 penalty per day authorized by law (* * * Tr. 340-341; Pr.Ex. 25/1-2(1n.32-58), 8–18, 20–24).
   It should be noted that much larger civil money penalties could have been imposed by the FDIC. In the case of Respondent * * * violations of Regulation O first occurred on February 1, 1983 and continued until August 15, 1985 (Pr.Ex. 63/1-3(1n.7-121)), a period of 926 days, thus justifying a possible civil money penalty against Respondent * * * in the amount of $926,000. In the case of Respondent * * * , it might be noted that the FDIC is not seeking the imposition of any penalty for violations of Regulation O by Respondent * * * scheduled in the * * * State report of examination of the Bank conducted as of February 29, 1984 (* * * , Tr. 65-68, 71-74; Pr.Ex. 3A/3,3B)

V. PROPOSED ORDERS

   Based upon the foregoing I recommend that, the "Proposed Orders" set forth in Appendix E be adopted by the FDIC Board of Directors.
   By Paul S. Cross, Administrative Law Judge to whom these matters are assigned.
   Dated at Washington, DC, this 26th day of February, 1986.
{{4-1-90 p.A-883}}

APPENDIX A

DESCRIPTIVE INDEX OF FDIC
EXHIBITS

DESCRIPTION OF
EXHIBIT (Number of
EXHIBIT Pages)
Composite exhibit of
extracted portions of laws
and regulations applicable
to the subject proceeding.
1 (38)
Composite exhibit of Bank
records reflecting 15% and
25% of the total
unimpaired capital and
surplus of the Bank for the
quarterly periods between
2 12-31-82 and 6-30-85. (22)
Extract portion of * * *
State Report of
Examination of the Bank as
3A of 2-28-84. (10)
* * * State Management
Letter concerning State
examination of the Bank as
3B of 2-29-84. (6)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
8 June 18, 1984 (90)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
9 June 20, 1984. (30)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
10 June 25, 1984. (30)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
11 July 2, 1984. (19)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
12 July 9, 1984. (20)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
13 August 1, 1984. (19)
DESCRIPTION OF
EXHIBIT (Number of
EXHIBIT Pages)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
14 August 13, 1984. (18)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
15 September 13, 1984. (23)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
16 September 17, 1984. (22)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
17 October 1, 1984. (19)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
18 October 9, 1984. (19)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
20 October 18, 1984. (21)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
21 October 25, 1984. (21)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
22 November 1, 1984. (22)
Summary exhibit reflecting
aggregate amount of
outstanding credit extended
by the Bank to Respondent
* * * between June 18,
1984 and November 15,
25 1984. (3)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
26 February 1, 1983. (39)
Composite exhibit of Bank
records reflecting aggregate

{{4-1-90 p.A-884}}

DESCRIPTION OF
EXHIBIT (Number of
EXHIBIT Pages)
credit outstanding to
Respondent * * * as of
27A March 4, 1983. (62)
FDIC Bank letter 41 - 83
dated 11-25-83 and
Instructions for
Consolidated Reports of
27B Condition and Income. (28)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
28 March 31, 1983. (8)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
29 April 28, 1983. (9)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
30 May 13, 1983. (6)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
31 September 14, 1983. (6)
Extract portion of FDIC
Report of Examination of
the Bank as of 9-23-83.
32A (12)
FDIC Management Letter
to board of directors of
Bank dated 10-25-83
regarding FDIC
examination of Bank as of
32B 9-23-83. (5)
Minutes of meeting of
board of directors of Bank
32C of February 17, 1983. (4)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
33 September 27, 1983. (7)
Memorandum to files dated
10-26-83 regarding
supervisory meeting
between FDIC and board
of directors of Bank on 10-
34 25-85. (1)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
DESCRIPTION OF
EXHIBIT (Number of
EXHIBIT Pages)
Respondent * * * as of
35 November 3, 1983. (8)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
36 November 17, 1983. (9)
Letter to Bank dated 11-22-83
regarding possible civil
money penalties for
violations of Regulation O.
37A (1)
Letter to Bank dated 4-20-84
requesting response to
FDIC letter dated 11-22-83
concerning civil money
37B penalties. (8)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
38 November 22, 1983. (10)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
39 November 30, 1983. (11)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
40 December 1, 1983. (11)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
41 December 28, 1983. (13)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
December 30, 1983. (First
42 loan) (14)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
December 30, 1983.
43 (Second loan) (14)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * of
44 January 6, 1984. (16)

{{4-1-90 p.A-885}}

DESCRIPTION OF
EXHIBIT (Number of
EXHIBIT Pages)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * of
45 January 9, 1984. (14)
Memorandum of
Understanding (MOU)
between FDIC and the
board of directors of the
46 Bank dated 1-16-84. (7)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
47 February 1, 1984. (16)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
48 March 14, 1984. (17)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
49 March 26, 1984. (17)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
50 March 27, 1984. (15)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
51 May 1, 1984. (17)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
52 May 4, 1984. (19)
Memorandum to Files
dated 5-10-84 regarding
supervisory meeting
between FDIC and board
of directors of Bank on 5-
53 9-84. (3)
Resolution of board of
directors of the Bank dated
54 5-17-84. (2)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
55 June 15, 1984. (12)
DESCRIPTION OF
EXHIBIT (Number of
EXHIBIT Pages)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
56 June 20, 1984. (14)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
June 25, 1984. (First loan)
57 (14)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
June 25, 1984. (Second
58 loan) (20)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
59 August 14, 1984. (13)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
60 September 25, 1984. (10)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
61 October 1, 1984. (10)
Extract portion of FDIC
Report of Examination of
the Bank as of 10-12-84.
62A (15)
FDIC Management Letter
to board of directors of the
Bank dated 11-9-84
regarding FDIC
examination of Bank as of
62B 10-12-84. (4)
Summary exhibit reflecting
aggregate amount of
outstanding credit extended
by the Bank to Respondent
* * * between February 1,
1983 and August 15, 1985.
63 (4)
Memorandum to Files
dated 11-14-84 regarding
supervisory meeting
between FDIC and board

{{4-1-90 p.A-886}}

DESCRIPTION OF
EXHIBIT (Number of
EXHIBIT Pages)
of directors of Bank on 11-
64 9-84. (3)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
65 December 5, 1984. (8)
Letter to Respondent * * *
dated 2-1-85 regarding
consideration of assessment
of civil money penalty by
66 FDIC. (2)
Letter to Respondent * * *
dated 2-1-85 regarding
consideration of assessment
of civil money penalty by
67 FDIC. (2)
Letter response dated 2-19-85
of Respondent * * * to
FDIC concerning
assessment of civil money
70A penalty. (32)
Supplemental letter
response dated 3-4-85 of
Respondent * * * to FDIC
concerning assessment of
70B civil money penalty. (6)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
71 March 5, 1985. (8)
DESCRIPTION OF
EXHIBIT (Number of
EXHIBIT Pages)
Letter response dated 3-12-85
of Respondent * * * to
FDIC 2-1-85 concerning
assessment of civil money
72 penalty. (3)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
73 March 19, 1985. (11)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
74 April 1, 1985. (8)
Memorandum from FDIC
Examiner * * * dated 4-9-85
reviewing appropriation
of civil money penalty
75A against Respondent (3)
Memorandum from FDIC
Examiner * * * dated 4-9-85
reviewing appropriation
of civil money penalty
75B against Respondent (3)
Composite exhibit of Bank
records reflecting aggregate
credit outstanding to
Respondent * * * as of
76 August 15, 1985. (10)

APPENDIX B

CROSS-INDEX OF FDIC
EXHIBITS TO FDIC WITNESSES

EXHIBIT WITNESS EXHIBIT WITNESS
1 (Stipulated) 20 "
2 *** 21 "
3A *** 22 "
3B " 25 ***
8 *** 26 " / "
9 " 27A " / "
10 " 27B " / "
11 " 28 " / "
12 " 29 " / "
13 " 30 " / "
14 " 31 " / "
15 " 32A ***
16 " 32B " / "
17 " 32C ***
18 " 33 ***
19 " 34 ***

{{4-1-90 p.A-887}}

EXHIBIT WITNESS EXHIBIT WITNESS
35 " / " 56 "
36 *** 57 "
37A *** 58 "
37B "/" 59 "
38 *** 60 "
39 " 61 "
40 " 62A ***
41 " 62B " / "
42 " 63 ***
43 " 64 ***
44 " 65 ***
45 " 66 ***
46 *** 67 "
47 *** 70A "
48 " 70B "
49 " 71 ***
50 " 72 ***
51 " 73 ***
52 " 74 "
53 *** 75A ***
54 *** 75B " / "
55 *** 76 ***

APPENDIX C

CROSS-INDEX OF FDIC WITNESSES TO FDIC EXHIBITS

WITNESS EXHIBIT WITNESS EXHIBIT
*** 2 " 15
" 26 " 16
" 27A " 17
" 27B " 18
" 28 " 19
" 29 " 20
" 30 " 21
" 31 " 22
" 32A " 25
" 32B " 26
" 32C " 27A
*** 3A " 27B
" 3B " 28
*** 37A " 29
" 37B " 30
" 53 " 31
" 54 " 33
" 64 " 34
*** 2 " 35
" 8 " 36
" 9 *** 38
" 10 " 39
" 11 " 40
" 12 " 41
" 13 " 42
" 14 " 43

{{4-1-90 p.A-888}}

" 44 " 73
" 45 " 74
" 46 " 75A
" 47 " 75B
" 48 " 76
" 49 *** 32A
" 50 " 32B
" 51 " 34
" 52 " 37A
" 54 " 37B
" 55 " 46
" 56 " 54
" 57 " 62A
" 58 " 62B
" 59 " 64
" 60 " 66
" 61 " 67
" 62A *** 70A
" 62B " 70B
" 63 " 72
" 65 " 75A
" 71 " 75B

{{4-1-90 p.A-889}}

APPENDIX D

SUMMARY CHRONOLOGY OF SIGNIFICANT EVENTS

FDIC TRANSCRIPT FDIC
DATE DESCRIPTION OF EVENT WITNESS PAGES EXHIBIT
2-1-83 Bank had extended aggregate outstanding * * * 171–172 63/1(1n.7)
credit to Respondent * * * totaling 182 26
$901,188 resulting in overline of $405,888. 310-311
3-4-83 Bank made new loan of $2,625,000 * * * 27-32 27A
guaranteed by Respondent * * * for direct 44–45, 58
benefit of related interest of Respondent * * * 69-70
* * * ( * * * ) resulting in increased * * * 131, 142
overline of $2,700,688. * * * 171, 182 63/1(1n.8)
291-292 27A
310-311
* * * 425-428
* * * 434
517-522
3-31 thru Bank renewed four (4) loans ranging from * * * 38-39
9-14-83 $45,000 to $150,000 on which Respondent * * * 171 63/1(1n.10-17)
* * * was either directly or indirectly 183 28/1-3, 16, 17
obligated resulting in continued overlines 310-311 29/1-3
ranging from $2,001,805 to $2,351,591. 30/1-3
31/1-2
26/1-2
16–17
20-21
9-23-83 FDIC conducted examination of bank * * * 23-25 32A
(EIC * * *); violations of Regulation O 39–40
cited as to Respondent * * * 42-45
9-27-83 Bank renewed loan of $24,305 guaranteed * * * 171,183 63/1(1n.22)
by Respondent * * * resulting in 310, 311 33/1-4
continued overline of $2,103,305. 28/1-3
26/1-2
10-25-83 Representatives of FDIC met with board * * * 42-45 32B
of directors of Bank, concerning FDIC * * * 314-318 34
examination of 9-23-83; violations of * * * 432
Regulation O by Respondent * * * and * * * 534-538 34
possible civil money penalties discussed in
detail.
10-26-83 Memorandum to Files by ARD * * * * * * 314-318 34
concerning meeting of 10-25-83 with board 368
of directors of Bank. * * * 537-538 34
11-3-83 Bank made new loan of $35,000 to * * * 171, 183 63/1(1n.27)
Respondent * * * resulting in increased 310-311 35/1-2
overline of $1,475,805.
11-17-83 Bank made new loan of $35,000 to * * * 171,183 63/1(1n.28)
Respondent * * * resulting in increased 310-311 36/1-2
overline of $1,510,805.
11-22-83 FDIC advised board of directors of Bank * * * 211
that FDIC considered violations of * * * 106-108 37A
Regulation O by Respondent * * * very * * * 318-320 37A
serious, but that civil money penalties
would not be pursued regarding such
violations provided the board of directors
of the Bank adopted a resolution and
specific procedures to correct cited
violations of Regulation O and to prevent
future violations.
11-22-83 Bank made new loan of $40,000 to * * * 171, 183 63/1(1n.32)
Respondent * * * resulting in continued 310-311 38/1-2
overline of $1,550,805.

{{4-1-90 p.A-890}}

FDIC TRANSCRIPT FDIC
DATE DESCRIPTION OF EVENT WITNESS PAGES EXHIBIT
11-30-83 Bank made new loan of $60,000 to * * * 171, 183 63/1(1n.33)
Respondent * * * resulting in increased 310-311 39/1-2
overline of $1,610,805.
12-1-83 Bank renewed loan of $10,000 guaranteed * * * 171, 183 63/1(1n.34)
by Respondent * * * resulting in 310-311 40/1-2
continued overline of $1,610,805. 26/3-5,13-A
12-28-83 Bank made new loan of $180,000 to * * * 171, 183 63/1(1n.35)
Respondent * * * resulting in increased 310-311 41/1-2
overline of $1,790,805.
12-30-83 Bank renewed loan of $140,000 to * * * 171, 183 63/1(1n.36, 37)
Respondent * * * and made new loan of 310-311 42/1-3
$30,000 to Respondent * * * resulting in 26/16-17
increased overline of $1,820,805. 43/1-2
1-6-84 Bank made new loan of $64,673 to * * * 171, 183 63/1(1n.38)
Respondent * * * resulting in increased 310-311 44/1-3
overline of $1,853,728.
1-9-84 Bank renewed loan of $10,000 guaranteed * * * 171, 183 63/1(1n.39)
by Respondent * * * resulting in 310-311 45/1-2
continued overline of $1,853,728. 40/1-2
26/3-5, 13-A
1-16-84 FDIC and board of directors of Bank * * * 106, 108
entered into Memorandum of * * * 202–204 62A
Understanding requiring that the Bank * * * 317-324 46
correct past violations of Regulation O 368
and adopt procedures designed to prevent
future violations of Regulation O.
2-1-84 Bank made new loan of $40,000 to * * * 171 63/2(1n.42)
Respondent * * * resulting in increased 183-184 47/1-2
overline of $1,893,728. 203
310-311
2-29-84 * * * Department of Banking and Finance * * * 61-78 3A
conducted an examination of Bank (EIC 101-102
* * *); violations of Regulation O cited as * * * 110
to Respondents * * * and * * *.
3-14 thru Bank renewed three (3) loans ranging from * * * 171, 184 63/2(1n.49)
3-27-84 $10,000 to $150,000 on which Respondent 203 50, 51
* * * is either directly or indirectly 310-311 48/1-3
obligated resulting in continued overline 49/1-3
ranging from $1,888,719 to $1,891,456. 33/1-4
28/1-3
26/1-5, 13-A
50/1-2
45/1-2
40/1-2
4-20-84 FDIC made follow-up request to board of * * * 107-108 37B
directors of Bank for response to letter of 158-160
11-22-83.
5-1-84 Bank renewed four (4) loans to * * * 171, 184 63/2(1n.58)
Respondent * * * totaling $170,000 204 51/1-6
resulting in continued overline of 310-311
$1,800,388.
5-4-84 Bank made new loan of $65,000 to * * * 171, 184-185 63/2(1n.59)
Respondent * * * resulting in increased 204, 260-263 52/1-6
overline of $1,865,388. 269-271
* * * 310-311
346-347,358

{{4-1-90 p.A-891}}

FDIC TRANSCRIPT FDIC
DATE DESCRIPTION OF EVENT WITNESS PAGES EXHIBIT
5-9-84 Representatives of FDIC and State met * * * 61-78 3A
with board of directors of the Bank 101-102
regarding * * * State examination as of 2- * * * 110-117 53
29-84; violations of Regulation O of * * * 324-326 53
Respondents * * * and * * * and possible * * * 540
civil money penalties discussed at length;
directors "warned" that violations of
Regulation O in a future FDIC report
would result in recommendation for
assessment of penalty.
5-10-84 Memorandum to Files by FDIC Review * * * 115-116 53
Examiner * * * regarding meeting with 123-124
board of directors of Bank on 5-9-84. 158-160
* * * 324-326 53
5-17-84 Board of directors of Bank adopted * * * 108-109,121 53
resolution and revised loan policy 158-160
regarding violations of Regulation O in * * * 326 54
response to FDIC request of 11-22-83. * * * 211-212 54
* * * 539-546 54
* * * 493-495
6-15-84 Bank renewed loan of $10,000 guaranteed * * * 171,189,204 63/2(1n.69)
by Respondent * * * resulting in 310-311 55/1-2
continued overline of $1,725,331. 45/1-2
40/1-2
26/3-5,13-A
6-18-84 Bank had extended aggregate outstanding * * * 217-218 25/1(1n.15-32)
credit to Respondent * * * totaling 310-311 8
$793,358 resulting in overline of $608.
6-20-84 Bank made new loan of $210,000 to * * * 213-214 25/1(1n.33)
related interest of Respondent * * * * * * 244-246 9/1-4
resulting in increased overline of $210,608. 269,271
* * * 310-311
* * * 346-347
358
* * * 452-454
478-484
* * * 550-551
6-20-84 Bank made.new loan of $210,000 to * * * 171 63/2(1n.71)
related interest of Respondent * * * * * * 189-190 56/1-2
resulting in increased overline of 204
$1,930,331. 232-237
244-246
260-263
269-271
289-291
310-311
* * * 346-347
358
* * * 452-458
478-484
* * * 550-551
6-25-84 Bank renewed three (3) loans totaling * * * 213-214 25/1(1n.36)
$415,388 to Respondent * * * resulting in 310-311 10/1-2
continued overline of $210,608. 8/7-17
6-25-84 Bank renewed three (3) loans totaling * * * 171,190 63/2(1n.72-74)
$234,736 on which Respondent * * * was 204 57/1-2
either directly or indirectly obligated 310-311 49/1-3
resulting in continued overline of 28/1-3
$1,927,331. 26/1-2
58/1-6

{{4-1-90 p.A-892}}

FDIC TRANSCRIPT FDIC
DATE DESCRIPTION OF EVENT WITNESS PAGES EXHIBIT
7-2 thru Bank renewed ten (10) loans ranging from * * * 213-214 25/1-2(In.37-46)
10-9-84 $10,000 to 60,000 on which Respondent 310-311 11/1-3
* * * was either directly or indirectly 12/1-4
obligated resulting in continued overlines 13/1-3
ranging from $108,313 to $146,708. 14/1-2
15/1-8
16-1/5
17-1/2
11/1-3
18/1-2
12-1/4
8/29-32
39-41
44-46
49-50
53–56
65–66
69-72
78-89
8-14-84 Bank renewed loan of $10,000 guaranteed * * * 171,196 63/2(1n.77)
by Respondent * * * resulting in 204 59/1-2
continued overline of $1,815,791. 287-288 55/1-2
310-311 50/1-2
45/1-2
40/1-2
26/3-5,13-A
9-25 thru Bank renewed two (2) loans totaling * * * 171,190 63/2(1n.85-86)
10-1-84 $173,736 on which Respondent * * * was 204 60/1-2
either directly or indirectly obligated 310-311 57/1-2
resulting in continued overline ranging 49/1-3
from $1,384,752 to $1,376,252 33/1-4
28/1-3
26/1-2
61-1/2
10-12-84 FDIC conducted examination of Bank * * * 169-228 62A
(EIC * * *); numerous violations of * * * 491-493
Regulation O cited as to Respondents
* * * and * * *
10-18-84 Bank made loan of $275,000 to * * * 213-214 25/2(1n.50)
Respondent * * * resulting in continued 310-311 20/1-2
overline of $383,313.
11-5-84 FDIC examiners conducted special * * * 228-246
meeting with Respondents * * * and 259
* * * regarding results of FDIC * * * 453-455
examination of 10-12-84, including 472, 489
violations of Regulation O; seriousness of * * * 546-548
violations and possible assessment of civil
money penalties specifically discussed in
face of prior notices and warnings.
11-9-84 Representatives of FDIC and State met * * * 226-228 62B
with board of directors of Bank regarding * * * 310-311
FDIC examination of Bank as of 1-12-84; 117-122 64
violations of Regulation O of Respondents * * * 490
* * * and * * * , and possible civil
money penalties against each discussed in
detail.
11-14-84 Memorandum to Files by FDIC Review * * * 121-122 64
Examiner * * * regarding supervisory 158-160
meeting with board of directors of Bank
on 11-9-84.
11-15-84 Violation of Regulation O as to * * * 259,278 25/2(1n.57-58)
Respondent * * * was corrected. * * * 453-455
* * * 548-549

{{4-1-90 p.A-893}}

FDIC TRANSCRIPT FDIC
DATE DESCRIPTION OF EVENT WITNESS PAGES EXHIBIT
12-5-84 Bank renewed loan of $10,000 guaranteed * * * 190,205 63/3(1n.94)
by Respondent * * * resulting in 310-311 65
continued overline of $1,161,252.
2-1-85 FDIC issued ten-day letters notifying * * * 329-331 66,67
Respondents * * * and * * * of 356-358
consideration of civil money penalties by 360-367,368
FDIC
2-19-85 Respondent * * * responded to ten-day * * * 331-334,368 70A
letter of FDIC (first response).
3-4-85 Respondent * * * responded to ten-day * * * 331-334,368 70B
letter of FDIC (second response).
3-5-85 Bank renewed loan of $10,000 guaranteed * * * 190 63/3(1n.104)
by Respondent * * * resulting in 310-311 !by Respondent * * * resulting in!310-311!71
continued overline of $1,061,752
3-12-85 Respondent * * * responded to ten-day * * * 334-337 72
letter of FDIC. 368
3-19-85 Bank repurchased participation of loan * * * 205 63/3(In.109)
guaranteed by Respondent * * * in the 74
amount of $300,000 resulting in increased
overline of $1,456,752.
4-1-85 Bank renewed loan of $150,000 to related * * * 205 63/3(In.110)
interest of Respondent * * * resulting in 310-311 74
increased overline of $1,477,252 * * * 480-481
4-9-85 FDIC reviewed thirteen (13) factors in * * * 247-254 75A,75B
considering appropriateness of civil money 310-311
penalties against Respondents * * * and * * * 337-341
* * * 350-352
8-15-85 Violation of Regulation O as to * * * 293 63/3(In.121)
Respondent * * * was corrected.

APPENDIX E

PROPOSED ORDERS

   A. Respondent * * *

ORDER TO PAY

   After taking into account the appropriateness of the penalty with respect to the financial resources and good faith of * * * , the gravity of the violations, the history of previous violations, and such other matters as justice may require it is:
   ORDERED, that by reason of the violations of law and regulation evidenced in the record of a hearing of this action, a civil money penalty in the amount of $30,800 be, and hereby is, assessed against * * * pursuant to section 18(j)(3) of the Federal Deposit Insurance Act (12 U.S.C. §1828(j)(3)).
   FURTHER ORDERED, that the penalty hereby ordered shall not be paid directly or indirectly by * * * Bank, * * *, but shall be paid by * * *.
   FURTHER ORDERED, that this Order shall be effective upon service on * * * and that the penalty ordered shall be final and payable after 20 days from the date of such service unless an appeal from this Order is filed within such period.
   By direction of the Board of Directors.
   Dated at Washington, D.C. this ____ day of ____, 1986.

Hoyle L. Robinson
Executive Secretary

B. Respondent * * *

ORDER TO PAY

   After taking into account the appropriateness of the penalty with respect to the financial resources and good faith of * * * the gravity of the violations, the history of previous violations, and such other matters as justice may require it is:
   ORDERED, that by reason of the violations of law and regulation evidenced in the record of a hearing of this action, a civil money penalty in the amount of $14,800 {{4-1-90 p.A-894}}be, and hereby is, assessed against * * * pursuant to section 18(j)(3) of the Federal Deposit Insurance Act (12 U.S.C. §1828(j)(3)).
   FURTHER ORDERED, that the penalty hereby ordered shall not be paid directly or indirectly by * * * Bank, * * *, but shall be paid by * * *.
   FURTHER ORDERED, that this Order shall be effective upon service on * * * and that the penalty ordered shall be final and payable after 20 days from the date of such service unless an appeal from this Order is filed within such period.
   By direction of the Board of Directors.
   Dated at Washington, D.C. this ____ day of ____, 1986.

Hoyle L. Robinson
Executive Secretary

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