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   [5072] FDIC Docket No. FDIC-85-291k (8-12-86).

   Civil money penalties assessed against bank officers and directors for extending credit to themselves and their related interests in an amount exceeding five percent of the bank's capital and unimpaired surplus, and in the absence of advance approval of a majority of the disinterested members of the bank's board of directors. Higher penalties were assessed against those officers and directors who violated Regulation O by overdrawing their personal accounts with the bank.

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   [.1] Regulation O—Approval By Board of Directors—Credits to Executive Officers
   Advance approval of Majority of a bank's board of directors is required for extensions of credit to a bank's executive officers, directors, principal shareholders, and their related interests when the lending limit is exceeded.

   [.2] Directors Ratification of Prior Acts
   A subsequent ratification the a bank's board of directors of an extension of credit is not equivalent to prior authorization.

   [.3] Practice and Procedure—Expertise of Administrative Agencies
   An administrative agency's interpretation of its own regulations deserves considerable deference by a reviewing court.

   [.4] Regulation O—Approval By Board of Directors—Credits Exceeding Lending Limits
   Because five percent of the bank's capital and unimpaired surplus was less than $500,000, the bank was required to obtain the prior approval of a majority of the disinterested members of the bank's board of directors for any extensions of credit which, when aggregated with all other extensions of credit, exceeded five percent of the bank's capital and unimpaired surplus.

   [.5] Civil Money Penalties—Amount of Penalty—Statutory Standard
   In determining the amount of the penalty, the following factors should be taken into account: the appropriateness of the penalty with respect to the size of financial resources and good faith of the member bank or person charged; the gravity of the violation; the history of previous violations; and such other matters as justice may require.

   [.6] Civil Money Penalties—Amount of Penalty—Correctional Violation
   Penalties assessed by the FDIC are appropriate and not excessive when the factors favorable to directors are that directors took immediate corrective action, cooperated with the FDIC in correcting the problem, did not attempt to conceal the violations (although the directors did not voluntarily disclose the violations), made restitution in the form of interest for their overdrafts, and there were no previous violations by the directors. On the other hand, there was evidence that the violations were frequent, covered a substantial period of time, and demonstrated a failure to observe a compliance program and sound banking practices in accordance with banking regulations.

(Next page is A-967.)

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   [.7] Civil Money Penalties—Differing Penalties Assessed
   Larger civil money penalties are justified for those officers and directors who had overdrawn their accounts.

   [.8] Directors—Effect of Experience in Banking
   An individual who is the president of a bank with extensive banking experience carries a heavier burden of responsibility for knowing and complying with laws and regulations.

In the Matter of * * *, individually and
as executive officers and/or directors of
* * * BANK (INSURED STATE NONMEMBER BANK)


DECISION AND ORDER TO PAY
CIVIL MONEY PENALTIES

FDIC-85-291k

   The Board of Review of the Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing ("Notice") to the above Respondents on October 9, 1985. The Notice alleged that Respondents individually and as executive officers and/or directors of * * * Bank, * * * ("Bank"), each violated section 22(h) of the Federal Reserve Act (12 U.S.C. § 375b) and Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O") (12 C.F.R. Part 215), promulgated thereunder and made to apply to insured State nonmember banks by section 18(j)(2) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. § 1828(j)(2)) and section 337.3 of the FDIC Rules and Regulations (12 C.F.R. § 337.3). These violations occurred in connection with the Bank's extensions of credit to * * *, * * *, * * * and * * * and their related interests and in connection with overdrafts of the accounts of * * * and * * *. The FDIC assessed civil money penalties of $5,000 against Mr. * * *; $1,800 against Mr. * * *; and $1,000 each against the other Respondents. This matter was referred to Administrative Law Judge Edwin S. Bernstein ("ALJ") for hearing and recommended decision and a formal hearing was held on February 11, 1986.
   The parties filed proposed findings of fact, proposed conclusions of law, briefs and reply briefs. The ALJ issued his decision on May 15, 1986 recommending entry of an Order assessing civil money penalties against the Respondents in the amounts set forth in the Notice. Respondents filed their exceptions on June 6, 1986.
   The ALJ found that Respondent * * * was, at all times pertinent to this proceeding, and "executive officer" of the Bank as that term is defined in section 215.2(d) of Regulation O (12 C.F.R. § 215.2(d)), and that Respondents * * *, * * *, * * *, * * *, * * *, * * *, * * * and * * * were each, at all times pertinent to this proceeding, a "director" of the Bank as that term is defined in section 215.2(c) of Regulation O (12 C.F.R. § 215.2(c)). The ALJ found that 1) extensions of credit were made by the Bank to Respondents * * *, * * *, * * * and * * * and their related interests; 2) the aggregate extensions of credit to each individual and his related interests exceeded five percent of the Bank's capital and unimpaired surplus; 3) each of these extensions of credit was made in the absence of advance approval of a majority of the disinterested members of the Bank's board of directors; and 4) the making of each of these extensions of credit was a violation of Regulation O and section 337.3(b) of the FDIC Rules and Regulations (12 C.F.R. § 337.3(b)).
   The ALJ further found that the Bank paid overdrafts on the accounts of Respondent * * * and Respondent * * * which exceeded $1000 and/or existed for more than five business days. In the absence of a written, pre-authorized interest-bearing extension of credit plan or a written, pre-authorized transfer of funds from another account plan, such payments violated Regulation O.
   The Board of Directors ("Board") finds that the ALJ's Recommended Decision (appended hereto) is in all material respects fully supported by the evidence in the record. We therefore adopt the ALJ's Recommended Decision and incorporate it herein by reference. As discussed more fully below, in connection with Respondent's exceptions, we modify the ALJ's Proposed Findings of Fact No. 25.
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   The Respondent's exceptions to the ALJ's Recommended Decision primarily include assertions of unsupported findings of fact, and failure to adopt supported findings and conclusions. The substance underlying most of these exceptions is that the ALJ did not agree with certain of Respondent's arguments and evidence. No purpose would be served by repeating here the ALJ's Recommended Decision, which details why the ALJ, and the Board, reject the Respondents' exceptions and proposed findings and conclusions that are inconsistent with the ALJ's and the Board's conclusions concerning the merits of this case.
   We have examined the record in light of all of Respondents' exceptions to the Recommended Decision and find that none of these exceptions require modifying the Recommended Decision. Two exceptions merit brief discussion as follows.
   Respondents assert that the ALJ's Findings of Fact regarding the 1982 FDIC examination report is inappropriate to the extent it refers to "violations" of Regulation O which were never pursued, substantiated or proven by the FDIC, and because the deficiencies cited in the 1982 examination report did not relate to the prior approval of loans to officers and directors or to payment of overdrafts for officers and directors. The record establishes that the 1984 examination report did state with reference to Regulation O, "Bank was similarly cited at the previous examination", and that the 1982 examination report set forth the requirements of Regulation O which must be met before a bank can extend credit to its officers and directors, including prior approval of certain loans and support for the actions of the board evidenced by resolutions. The 1984 report noted that board resolutions regarding the loans cited in 1982 were inadequate. Thus, we find that while the language of the 1982 examination report did not specify "violations" of Regulation O, it clearly put Respondents on notice of the requirements of Regulation O which had not been followed and which needed to be followed in the future.
   Accordingly, the bank examiners' statement in 1984 captured the essence of the 1982 examination report and clearly did not prejudice Respondents. The ALJ's opinion notes that the FDIC did not pursue this report and did not establish that Regulation O had been violated. He further states that the language of the report "should have alerted Respondents to the requirements of Regulation O." This, we believe, is the proper significance of the 1982 examination report. However, to accurately reflect the record we modify as follows the ALJ's Findings of Fact No. 25:

       The Bank was reminded in a March 31, 1982 FDIC Report of Examination of the requirements of the approval process for insider loans, including the requirement for prior approval of certain loans and was cited for deficiencies in the resolutions of the board of directors supporting extensions of credit to insiders.
   Respondents also made exception to that portion of the Recommended Decision which made reference to overdrafts which did not constitute violations of Regulation O because consideration of nonviolating overdrafts would have "worked unfair prejudice" against Respondents.
   The record clearly establishes that Respondent * * * and Respondent * * * each had multiple overdrafts in violation of Regulation O. The record also establishes that each of these Respondents had nonviolating overdrafts. There is nothing in the Recommended Decision which indicates that Judge Bernstein considered anything other than the overdrafts which did violate Regulation O in reaching his conclusion or that recitation of the facts established at hearing, i.e., the total number of overdrafts attributable to each Respondent, prejudiced Respondents in any way. Accordingly, we reject Respondent's exception.
   Having found that Respondents violated Regulation O, 12 C.F.R. Part 215, as set forth in the Recommended Decision, the Board finds that the ALJ's Proposed Order is appropriate. Therefore, the Board adopts herein that Proposed Order as its final ORDER in this proceeding.

ORDER TO PAY CIVIL MONEY
PENALTIES

   The Board of Directors of the Federal Deposit Insurance Corporation ("FDIC"), after taking into account the appropriateness of the penalties with respect to the financial resources and good faith of Respondents * * *, * * *, * * *, * * *, * * *, * * * * * *, and * * * the gravity of the violations, the history of previous violations, and such other matters as justice may require:
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   IT IS HEREBY 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 $1,000 each be, and hereby is, assessed against Respondents * * *, * * *, * * *, * * *, * * *, and * * *; a civil money penalty in the amount of $5,000 be, and hereby is, assessed against * * *; and a civil money penalty in the amount of $1,800 be, and hereby is, assessed against Respondent * * *; all pursuant to section 18(j)(3) of the Federal Deposit Insurance 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 the * * * State Bank, * * *, but shall be paid by the above-named Respondents.
   This ORDER shall become effective thirty (30) days from the date of this issuance and shall remain effective and enforceable except to the extent that, and until such time as, any provision of this ORDER shall have been modified, terminated, suspended or set aside by the FDIC.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 12th day of August, 1986.
/s/ Hoyle L. Robinson
Executive Secretary

RECOMMENDED DECISION

   The Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Assessment of Civil Money Penalties, Order to Pay, and Notice of Hearing against the above Respondents on October 9, 1985. The FDIC alleged that the * * * Bank, * * * ("the Bank") violated Regulation O of the Board of Governors of the Federal Reserve Board, 12 C.F.R. Part 215, in connection with its extensions of credit to * * *, * * *, * * * and * * * and their related interests and in connection with overdrafts of the accounts of * * * and * * *. The FDIC assessed civil money penalties of $5,000 against Mr. * * *; $1,800 against Mr. * * *; and $1,000 each against the other Respondents. This matter was referred to me for hearing and decision and a formal hearing was held on February 11, 1986, in * * *. The parties filed excellent proposed findings of fact, proposed conclusions of law, briefs, and reply briefs. All proposed findings, proposed conclusions and arguments have been considered. To the extent indicated, they have been adopted. Otherwise, they have been rejected as irrelevant or not supported by the evidence. Upon the entire record, I make the following findings of fact, conclusions of law and proposed order.

FINDINGS OF FACT

   1. The Bank is a corporation existing and doing business under the laws of the State of * * *, having its principal place of business in * * *, and is an insured State nonmember bank subject to the Federal Deposit Insurance Act, 12 U.S.C. § 1811 et seq. ("the Act") (Admitted in para. 1 of Respondents' Answer).
   2. At all times pertinent to this proceeding, * * * was the president and an "executive officer" of the Bank and * * *, * * *, * * *, * * *, * * *, * * *, * * * and * * * each were a "director" of the Bank as the terms "executive officer" and "director", are defined in sections 215.2(d) and (c) of Regulation O (Admitted in para. 1 of Respondents' Answer).
   (No paragraph 3 in original—Ed.)
   4. At no time in 1983 or 1984 did five percent of the Bank's capital and unimpaired surplus as defined in section 215.2(f) of Regulation O exceed $124,000 (Tr. 38–39).
   5. The Bank extended credit to * * * on the following dates in the following amounts:
November 2, 1981 $33,499.86 (Tr. 25)
February 24, 1984 $13,934.65 (Tr. 25)
March 26, 1984 $95,000.00 (Stip. III)
March 26, 1984 $7,900.00 (Stip. III)
   6. The Bank extended credit to * * * on September 10, 1984, in the amount of $84,000. At that time, * * * was a related interest of * * * for purposes of Regulation O (Stip. IV).
   7. On March 26, 1984, the aggregate of the extensions of credit by the Bank to * * * was approximately $142,075.98 (Tr. 30) and on September 10, 1984, the aggregate of the extensions of credit by the Bank to Mr. * * * and his related interests was approximately $226,129.57 (Tr. 31).
   8. Neither of the extensions of credit made to * * * on March 26, 1984 nor the loan made to * * * on September 10, 1984 {{4-1-90 p.A-970}}received the prior approval of a majority of the disinterested members of the Bank's board of directors (Tr. 31).
   9. The Bank extended credit to * * * on the following dates in the following amounts:
November 16, 1983 $35,392.99
March 27, 1984 $150,000.00 (Stip. I)
   10. The aggregate of the extensions of credit by the Bank to * * * on March 27, 1984 was $178,084.62 (Tr. 35).
   11. The extension of credit by the Bank to * * * on March 27, 1984 did not receive prior approval of a majority of the disinterested members of the Bank's board of directors (Tr. 36, 119).
   12. The Bank extended credit to * * * on the following dates in the following amounts:
April 18, 1984 $75,000.00
May 12, 1984 $40,283.95
June 8, 1984 $30,000.00
July 25, 1984 $15,000.00
October 18, 1984 $10,000.00 (Stip. II)
   13. The aggregate of the extensions of credit by the Bank to * * * on June 8, 1984 was $126,424.34; on July 25, 1984 was $141,424.34; and on October 18, 1984, was $151,424.34 (Tr. 36).
   14. The extensions of credit to * * * by the Bank on June 8, July 25, and October 18, 1984, did not receive the prior approval of a majority of the disinterested members of the Bank's board of directors (Tr. 37, 122–123).
   15. * * * was a vice-president of the Bank and an "executive officer" for purposes of Regulation O in 1984 (FDIC Ex. 2).
   16. The Bank extended credit to * * * on October 4, 1984, in the amount of $29,600.66 (Tr. 32).
   17. The Bank extended credit to * * * on August 30, 1984, in the amount of $3,000 and on November 1, 1984, in the amount of $63,550.88. At those times, * * * was a related interest of * * * for purposes of Regulation O (Stip. V).
   18. The Bank extended credit to * * * on November 3, 1984, in the amount of $40,000. At that time, * * * was a related interest of * * * for purposes of Regulation O (Stip. VI).
   19. The aggregate of the extensions of credit to and his related interests by the Bank on November 3, 1984, was $136,151.54. None of the loans to * * * or his related interests received the prior approval of a majority of the disinterested members of the Bank's board of directors (Tr. 34 and 35).
   20. The Bank suffered no losses in connection with any of the foregoing extensions of credit (Stip. X).
   21. * * * overdrew his checking account at the Bank 30 times between January 13, 1983 and August 20, 1984. Between those dates, his checking account was overdrawn 81 days. Five of the overdrafts were for more than $1,000 (FDIC Ex. 2). Mr. * * * paid the Bank interest for these overdrafts (Stip. XII).
   22. * * * overdrew his checking account at the Bank 11 times between June 13, 1983 and November 19, 1984. Between those dates, the overdrafts existed for 36 days. Seven of the overdrafts were for more than $1,000 or existed for more than five business days (FDIC Ex. 2). Mr. * * * paid the Bank interest for these overdrafts (Stip XIV).
   23. The Bank's board of directors received and reviewed overdraft reports which contained notations of overdrafts of * * * and * * * (Tr. 40–41).
   24. Neither Mr. * * * nor Mr. * * * had established with the Bank a written, preauthorized interest-bearing extension of credit plan or a written, pre-authorized transfer of funds from another account plan (Tr. 41).
   25. The Bank was cited in a March 31, 1982 FDIC Report of Examination for violations of Regulation O relating to deficiencies in the approval process for insider loans (FDIC Ex. 1; Tr. 101–102).
   26. All Respondents have been directors of the Bank since before March 31, 1982 (FDIC Ex. 3).
   27. Respondents were not aware of the requirements of Regulation O. Subsequent to the extensions of credit, the Bank's board of directors approved the extensions of credit (Tr. 139, Resp. Ex. 1).
   28. Respondents failed to implement an adequate compliance program to ensure compliance with Regulation O and section 337.3(b) of the FDIC Rules and Regulations (Tr. 83).
   29. The FDIC considered all of the factors required by section 18(j)(3)(B) of the {{4-1-90 p.A-971}}FDIC Act when it assessed the civil money penalties against Respondents (Tr. 80–84).
   30. The net worths of Respondents as estimated by * * * for the FDIC on November 24, 1984, were:

* * * $250,000
* * * $300,000
* * * $900,000
* * * $250,000
* * * $850,000
* * * $500,000 or more
* * * $149,000
* * * $350,000

   (FDIC Ex. 3)

CONCLUSIONS OF LAW

   1. The Bank's extensions of credit to * * * and his related interests on March 26, 1984 and September 10, 1984, violated section 215.4(b) of Regulation O and section 337.3(b) of the FDIC Rules and Regulations.
   2. The Bank's extension of credit to * * * on March 27, 1984, violated section 215.4(b) of Regulation O and section 337.3(b) of the FDIC Rules and Regulations.
   3. The Bank's extensions of credit to * * * on June 8, July 25, and October 18, 1984, violated section 215.4(b) of Regulation O and section 337.3(b) of the FDIC Rules and Regulations.
   4. The Bank's extension of credit to * * * and his related interests on November 3, 1984, violated section 215.4(b) of Regulation O and section 337.3(b) of the FDIC Rules and Regulations.
   5. The payment of overdrafts of * * * and * * * by the Bank violated section 215.4(d) of Regulation O.
   6. All Respondents "violated" Regulation O and section 337.3(b) of the FDIC Rules and Regulations for purposes of section 18(j)(3)(A) of the Federal Deposit Insurance Act by either causing, bringing about, and/or participating in the violations of those sections.
   7. The civil money penalties assessed against Respondents are reasonable in relation to the facts, are not arbitrary or capricious, and are supported by the record.

OPINION

   The FDIC's assessment of civil money penalties is based upon two kinds of alleged violations: (1) extensions of credit by the bank to officers and directors in excess of permissible limits and (2) overdrafts of officers and directors accounts in the absence of a written overdraft agreement.

I. The Extensions of Credit

   [.1] The prohibition against extensions of credit that exceed in the aggregate an amount determined by the appropriate federal agency, without prior board of directors' approval, is contained in section 22(h)(2) of the Federal Reserve Act, 12 U.S.C. 375b(2) and is implemented by section 215.4(b) of Regulation O which reads:

       (1) Prior Approval. No member bank may extend credit (which term includes granting a line of credit) to any of its executive officers, directors, 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 to that person and to all related interests of that person, exceeds the higher of $25,000 or 5 percent of the member bank's capital and unimpaired surplus, unless: (i) The extension of credit has been approved in advance by a majority of the entire board of directors of that bank, and (ii) the interested party has abstained from participating directly or indirectly in the voting. In no event may a member bank extend credit to any one of its executive officers, directors, or principal shareholders, or to any related interest of that person, in the amount that, when related interest of that person, in the amount that, when aggregated with all other extensions of credit to that person, and all related interests of that person, exceeds $500,000, except by complying with the requirements of this paragraph.
Pursuant to its authority to adopt rules and regulations (12 U.S.C. § 1819) the Board of Directors of the FDIC adopted section 337.3(a) of the FDIC Rules and Regulations which applied Regulation O to state nonmember banks effective October 22, 1982. For the purposes of section 215.4(b), section 337.3(b) of the FDIC Rules and Regulations requires advance approval of a bank's entire board of directors for the ex- {{4-1-90 p.A-972}}tensions of credit to a bank's executive officers, directors, principal shareholders, and their related interests when the same lending limit as in section 215.4(b) is exceeded.
   Respondents did not deny that the extensions of credit were made to the Bank's officers and directors on the dates alleged by the FDIC without prior approval of the Bank's board of directors. However, Respondents assert two defenses:
       1. A subsequent ratification by the board of directors is sufficient to fulfill the requirement of prior approval of section 215.4(b) of Regulation O and section 337.3(b) of the FDIC Rules and Regulations.
       2. Section 337.3(b) of the FDIC Rules and Regulations does not require prior approval by a Bank's board of directors of a loan to an insider unless the aggregate extensions of credit exceed $500,000.
   Respondents state their argument with respect to ratification as follows:
       Notwithstanding the aggregate amount of loans to officers and directors, each challenged loan was ratified by a disinterested majority of the Bank's Board of Directors. Under longstanding principles of corporate law, ratification of an unauthorized act by a bank officer is equivalent to prior and valid authorization. (Respondents' Post-Hearing Brief, p. 3)
   I disagree.
   Respondents cite the following cases and authorities in support of their argument:
       Muentzer, et al. v. Los Angeles Trust and Savings Bank, 3 F.2d 222, 225 (7th Cir. 1924); Piper v. Moore, 183 P.2d 965, 971 (Kan. 1947); Komanetsky v. Missouri State Medical Association, 516 S.W.2d 545, 555 (Mo. App. 1975); 10 Am. Jur. 2d §§ 107 (Banks); 9 C.J.S. §§ 201 (Banks & Banking); Nutt v. State, 5 N.E.2d 708 (Ohio App. 1936); (Post-Hearing Brief, p. 3) Platt v. Schmitt, 117 Wis 489, 497, 94 N.W. 345 (1903); Marsh v. Fulton County, 77 Wall 676, 684 (1870) (Hearing Memorandum, p. 3).

   [.2] None of the authorities cited by Respondents supports their argument that in this statute and regulation a subsequent ratification by the Bank's board of directors is equivalent to prior authorization with respect to the extensions of credit to the Bank's officers and directors. The authorities cited refer to whether or not a bank can be bound with respect to third parties. They do not support the proposition that a statutory or regulatory requirement of prior approval can be satisfied by subsequent ratification. Typical is the language in 10 Am. Jur., ¶106 which reads:
       The fact that an officer or agent of a bank has acted without authority, actual or apparent, in a particular matter does not necessarily mean that the bank may not avail itself of the act; nor, on the other hand, does it necessarily mean that the bank may escape all responsibility and liability for such act. Any unauthorized act of a bank officer or agent may be ratified by the bank acting through the board of directors or other authorized officers of the bank, if they had power in the first place to authorize the act. Such ratification is equivalent to a prior and valid authority.
   I also disagree with Respondents' argument that Section 215.4(b) of Regulation O and Section 337.3(b) of the FDIC Rules and Regulations permit extension of credit to the Bank's officers and directors in the aggregate of up to $500,000.
   Section 337.3(a) of the FDIC Rules and Regulations provides that insured nonmember banks are subject to the restrictions contained in Part A of Regulation O excluding certain sections not relevant here. Section 337.3(b) dictates the aggregate extensions of credit limits which trigger the requirement of prior approval by a bank's board of directors for extensions of credit to an insider. In its relevant part, section 337.3(b) provides:
       ...[N]o insured nonmember bank may extend credit or grant a line of credit to any of its executive officers, directors, or principal shareholders or to any related interest of any such person in an amount that, when aggregated with the amount of all other extensions of credit and lines of credit by the bank to that person and to all related interests of that person, exceeds the greater of $25,000 or five percent of the bank's capital and unimpaired surplus, or $500,000 unless (1) the extension of credit or line of credit has been approved in advance by a majority of the entire board of directors of that bank and (2) the interested party has abstained from participating directly or {{4-1-90 p.A-973}}indirectly in the voting. [Emphasis added]
   Respondents argue that the underlined language allows an insider to borrow up to $500,000 without requiring the advance approval of the Bank's board of directors. Respondents' reading requires the term "the greater of" to modify "$25,000", "five percent of the bank's capital and unimpaired surplus", and "$500,000". However, in this provision "the greater of" only modifies "$25,000" and "five percent of the bank's capital and unimpaired surplus". If "the greater of" was intended to modify all three amounts, "$25,000" and "or five percent of the bank's capital and unimpaired surplus," would be separated by a comma, thereby creating a series. W. STRUNK AND E.B. WHITE, THE ELEMENTS OF STYLE (3rd Edition, 1979). As it is written, the phrase "the greater of $25,000 or five percent of the bank's capital and unimpaired surplus," is an independent clause which is separated from the limit of $500,000 by a comma.
   Additionally, if Respondents' interpretation is utilized, the $25,000 limitation would be superfluous. For if "the greater of" modifies both $25,000 and $500,000, then prior approval would never be needed for any amount less than $500,000. It is a standard of statutory construction that interpretations of statutes and regulations which result in absurd or meaningless results are not to be utilized. United States v. Katz, 271 U.S. 354 (1926).
   Part 337 was issued as a final rule on September 21, 1983, at 48 Fed. Reg. 42969 (12 C.F.R. Part 337). Prior to that date, section 337.3(b) required prior approval of a bank's board of directors for all extensions of credit made to insiders which in the aggregate exceeded $25,000. In the summary of the proposed regulatory action, the FDIC stated that:
       The FDIC is amending section 337.3(b) of its regulations to...substitute a prior approval formula whereby all extensions of credit or lines of credit that exceed in the aggregate five percent of capital and unimpaired surplus or $25,000, whichever is larger, must receive prior approval of the Board of Directors. In no event, however, may any extension of credit or line of credit that exceeds in the aggregate $500,000 be made without prior approval.

   [.3] This represents the interpretation of the FDIC of section 337.3(b) of its own regulation. As it has been frequently held, an administrative agency's interpretation of its own regulations deserves considerable deference by a reviewing court. Medical Center of Independence v. Harris, 628 F.2d 1113 (8th Cir. 1980).

   [.4] Because five percent of the Bank's capital and unimpaired surplus was less than $500,000, the Bank was required to obtain the prior approval of a majority of the disinterested members of the Bank's board of directors for any extensions of credit which, when aggregated with all other extensions of credit exceeded five percent of the Bank's capital and unimpaired surplus. During the relevant time period, five percent of the Bank's capital and unimpaired surplus never exceeded $124,000. Therefore, the extensions of credit herein violated the FDIC's regulations.

II. The Payment of Overdrafts

   Respondents do not deny that the Bank paid overdrafts on the accounts of * * * and * * * in violation of section 215.4(d) of Regulation O.

III. Penalties

   Section 18(j)(3)(A) of the Act provides that any officer or director of a non-member insured bank, who violates any provision of Sections 23A or 22(h) of the Act or any lawful regulations shall pay a civil money penalty of not more than $1,000 per day for each day during which such violation continues.
   The FDIC assessed penalties of $5,000 against * * *; $1,800 against * * *; and $1,000 each against * * *, * * *, * * *, * * *, * * *, and * * *. Respondents contend that even if they violated the Act and regulations, the penalties assessed are inappropriate.

   [.5] Section 18(j)(3)(B) of the Act provides the following guidelines for the assessment of penalties:

       In determining the amount of the penalty the Corporation shall take into account the appropriateness of the penalty with respect to the size of financial resources and good faith of the member bank or person charged, the gravity of {{4-1-90 p.A-974}}the violation, the history of previous violations, and such other matters as justice may require.
   In addition, the FDIC adopted the following Interagency Policy at 12 C.F.R. Part 308.
       In determining whether the violation is of sufficient gravity (i.e., the importance, significance and seriousness of the situation) to warrant initiating a civil money penalty assessment proceeding, the agencies have identified the following factors as relevant:
   (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;
   (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.
   In their post-hearing brief, Respondents argue that the application of these criteria together with those in section 18(j)(3)(B) of the Act demonstrates that no penalties should have been assessed. Upon consideration of all of these criteria, I find as follows.

   [.6] The factors favorable to Respondents are that Respondents took immediate corrective action, cooperated with the FDIC in correcting the problem, did not attempt to conceal the violations (although Respondents did not voluntarily disclose the violations); as acknowledged by the FDIC, there was no loss or risk of loss; Respondents made restitution in the form of interest paid by Mr. * * * and Mr. * * * for their overdrafts; and there were no previous violations by Respondents.
   On the other hand, as indicated by FDIC Exhibit 1, the FDIC's 1982 Report of Examination of the Bank, Respondents were previously cited for violations of Regulation O similar to the violations herein. Although the FDIC did not pursue this report and establish that Regulation O had been violated, this should have alerted Respondents to the requirements of Regulation O. Despite this notice, on many occasions credit was extended in amounts in excess of the required amount during a period of over seven months between March 26 and November 3, 1984. In addition, Mr. * * * overdrew his checking account 30 times during a 19 month period. Five of these overdrafts were from more than one $1,000. Mr. * * * overdrew his checking account 11 times during a 17 month period. Seven of these overdrafts were for more than $1,000 or existed for more than five business days.
   While there is no evidence that any of the violations were intentional, the violations were frequent, covered a substantial period of time, and demonstrated a failure to observe a compliance program and sound banking practices in accordance with banking regulations. While, upon learning of the FDIC's Complaint, Respondents instituted policies and agreed not to continue the complained of practices, the Bank had, previous to that time, instituted no compliance program and had no agreements with respect to the complained of practices.

   [.7,.8] Upon consideration of the foregoing, I find that the penalties assessed by the FDIC are appropriate and not excessive. In making this determination I have also considered the financial resources of Respondents. As indicated in FDIC Exh. 3, Mr. * * * had a net worth of over $500,000, Mr. * * * had a net worth of {{4-1-90 p.A-975}}approximately $850,000 and the remaining Respondents had net worths of between approximately $149,000 and $900,000. With the exception of Mr. * * * and Mr. * * * , all Respondents were assessed penalties of $1,000. Larger penalties for Mr. * * * and Mr. * * * are justified because of their overdrafts. Additionally, as president of the Bank and an individual with extensive banking experience (Tr. 159), * * * carries a heavier burden for responsibility for knowing and complying with the laws and regulations. In view of the foregoing, the penalties assessed are appropriate to serve notice on Respondents of the importance of complying with the requirements of the Act and its regulations in order to prevent future violations.

PROPOSED ORDER

   Based upon the foregoing findings of fact and conclusions of law, I recommend that the following order be entered by the FDIC's Board:
   After taking into account the appropriateness of the penalties with respect to the financial resources and good faith of Respondents * * * , * * * , * * * , * * * , * * * , * * * , * * * , and * * * , 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 $1,000 each be, and hereby is, assessed against the Respondents * * * , * * * , * * * , * * * , * * * , and * * *; a civil money penalty in the amount of $5,000 be, and hereby is, assessed against the Respondent * * *; a civil money penalty in the amount of $1,800 be, and hereby is, assessed against the Respondent * * *; all pursuant to section 18(j)(3) of the Federal Deposit Insurance Act. (12 U.S.C. § 1828(j)(3)); and it is
   FURTHER ORDERED, that the penalties hereby ordered shall not be paid directly or indirectly by the * * * Bank, * * * , but shall be paid by the above named Respondents.
   By order of the Board of Directors.
   Dated at Washington, D.C., this____day of____, 1986.
\s\ Edwin S. Bernstein
Administrative Law Judge

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