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   [5200] In the Matter of Tarrant Bank, Fort Worth, Texas, Docket No. FDIC-91-38a (8-17-93).

   FDIC Board denies request for stay of order terminating deposit insurance pending bank's appeal of that order to federal court, finding that bank failed to demonstrate that it meets all four factors required for a stay.

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   [.1] Practice and Procedure — Judicial Review — Stay of FDIC Action
   For FDIC to grant stay of one of its orders pending judicial review, bank must show likelihood of success on the merits, irreparable injury if stay is not granted, no substantial harm to other interested persons, and no harm to the public interest.

   [.2] Practice and Procedure — Judicial Review — Stay of FDIC Action
   Though bank my be irreparably harmed by termination of its deposit insurance pending judicial review, no stay is warranted where bank is not likely to succeed on the merits and the public would be ill-served by a stay.

In the Matter of

TARRANT BANK
FORT WORTH, TEXAS
(Insured State Nonmember Bank)
DECISION AND ORDER
DENYING MOTION FOR
STAY PENDING APPEAL

FDIC-91-38a

   On July 20, 1993, the Board of Directors of the Federal Deposit Insurance Corporation ("FDIC Board" or "Board") issued an Order terminating the deposit insurance of Tarrant Bank, Fort Worth, Texas ("Bank"), effective forty-five (45) days thereafter. The Order is to remain effective and enforceable until such time as any of its provisions shall have been modified, terminated, suspended, or set aside by the FDIC.
   On July 23, 1993, the Bank filed a Motion for Stay of Order Terminating Federal Deposit Insurance ("Motion") requesting a stay pending appellate review by the United States Court of Appeals for the Fifth Circuit, but failed to assert any basis for the relief sought. By letter dated August 5, 1993, the Bank requested the Board to accept as its brief in support of the Motion the Bank's Emergency Motion for Stay filed with the Fifth Circuit, also dated August 5, 1993.

   [.1] The Board has adopted the standards applied by the federal courts in determining whether to grant a stay. Thus, the Board has held that petitions for a stay pending judicial review must demonstrate that the following four factors are met before a stay will be entered: (1) the bank is likely to prevail on the merits of the appeal; (2) the bank will suffer irreparable harm unless the stay is granted; (3) the stay will cause no substantial harm to other interested persons; and (4) the stay will serve the public interest. In the Matter of *** Bank, *** ***, ***, Docket No. FDIC-87-203b, 2 P-H FDIC Enf. Dec. ¶5123 (1988); In the matter of Harold A. Hoffman, Joseph L. Hayes and Alaska Continental Bank, Anchorage, Alaska, Docket No. FDIC-88-156c&b, 2 P-H FDIC Enf. Dec. ¶5141 (1989); 7 (Pt.2) J. Moore, J. Lucas & K. Sinclair, Jr., Moore's Federal Practice ¶65.04[1] at 39–40 (2d ed. 1989) and the cases cited therein; Virginia Petroleum Jobbers Assn. v. F.P.C., 259 F.2d 921, 925 (D.C. Cir. 1958).
   Irreparable Harm. The Bank has satisfied its burden with respect to the irreparable harm it will probably suffer if the Order is not stayed. Under the terms of the Order, the Bank is required to publish notice for the benefit of its depositors explaining that it will shortly lose its federal deposit insurance. That notice must be published 30 days after the effective date of the Order. The Bank asserts that Texas Banking Commissioner has stated that she will close the Bank rather than allow the notice to be published in order to protect the existing deposits in the Bank. That showing is sufficient to demonstrate irreparable harm to the Bank if the Order is not stayed pending judicial review.
   Likelihood of Success on the Merits. The FDIC Board adopted the Recommended Decision of the administrative law judge ("ALJ"), with minor modifications, finding that due to the Bank's unsafe and unsound operating condition, termination of the Bank's deposit insurance was warranted. See 12 U.S.C. § 1818(a). The central findings upon which that conclusion was based were:

    (1) The Bank has had seriously inadequate capital and a very high level of adversely classified assets for several consecutive years;
    (2) during this period, management has failed to properly supervise the Bank's high risk indirect dealer loans and has been unable to obtain new capital or otherwise improve operations, notwithstanding the current economic environment;
    (3) what minor improvements have occurred have been the result of a reduction in the Bank's assets, which increased its capital-to-assets ratio marginally, but also
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    substantially increased the ratio of its adversely classified assets to equity capital; and
    (4) the FDIC has provided ample time and opportunity during the course of the proceeding for the Bank to make necessary corrections and improvements and to provide evidence of any such improvement.
The Bank's arguments on the merits in support of its stay request fail to demonstrate either that any of those findings are incorrect, or that, taken together, they do not provide a rational basis for Board's conclusion that the Bank is operating in an unsafe and unsound condition and therefore poses an undue risk to the deposit insurance fund. The Board rejects each of the Bank's asserted grounds for reversal.
   The Bank argues, as it did in a motion to dismiss made to the Board, that the Board lacked jurisdiction to act because the Order was not rendered by March 2, 1993. As explained in the Order denying the Bank's motion to dismiss, it is well established that even if the statutory 90-day deadline for decision pursuant to 12 U.S.C. § 1818(h)(1) were missed, the Board would not lose jurisdiction to render a decision. See Saratoga Savs. and Loan Ass'n v. Federal Home Loan Bank Bd., 879 F.2d 689, 694 (9th Cir. 1989). However, here the 90-day deadline was not missed because instead of remaining closed, the hearing was reopened for consideration of updated evidence about the Bank's performance. This action restarts the 90-day clock. Therefore, the Bank's assertion that the timing of the Order prejudiced its due process rights is not well taken, especially in view of the fact that the reopening was in response to the Bank's claims of its recent improvements.
   Likewise, the Board finds no merit in the Bank's contention that its due process rights were abrogated by the Board not delaying its decision further in order to consider the report of a state examination conducted in May 1993. As the Board stated in the Order, the FDIC has provided ample time and opportunity during the course of this two-year proceeding for the Bank to make necessary corrections and to provide evidence of any improvements. At some point, the administrative process must come to a close. The Board reopened the proceeding once for the limited purpose of permitting the submission of report of examination conducted by the state in October 1992, and to allow the Bank to submit certain financial reports it produced in January 1993. The Bank was fairly treated, and given all the process to which it was due. Moreover, the Bank cites no specific evidence in the May 1993 state report of examination that would alter any of the Board's central findings upon which it based its conclusion that the Bank was operating in an unsafe and unsound condition. In fact, that report is highly critical of the Bank's performance, and concludes that the Bank remains in an unsafe and unsound condition, with critically low capital and excessive adversely classified assets. Furthermore, the report notes that Bank's weakening earnings outlook. That report simply does not affect the Board's conclusions regarding the Bank's undue risk to the insurance fund. Finally, the Board notes that the Bank's most recent quarterly call report shows that its primary capital ratio has actually fallen to approximately 4 percent when provision is made for a $700,000 judgment rendered against it in June 1993.
   The Board summarily rejects the Bank's contentions that the Board's decision lacks adequate findings of fact and that the findings made are unsupported by substantial evidence.
   Finally, the Board rejects the Bank's interpretation of the Board's obligations under the statutory termination of insurance provisions. Under the Bank's construction of section 1818(a), given the range of less drastic enforcement actions available to the FDIC, "when termination of deposit insurance will cause a loss to the fund when other actions can be taken which avoids such a loss," termination is unlawful. First, it is noteworthy that the Bank essentially concedes that its immediate closure could result in losses to the insurance fund. The possibility of such losses supports the conclusion that the Bank is operating in an unsafe and unsound condition. Second, the Bank's reading of the statute finds no support in the statutory language. If an institution is operating in an unsafe and unsound condition as to be an undue risk to the deposit insurance fund, the statute plainly gives the Board the discretion to terminate its insurance.
   Accordingly, it is highly unlikely that the Bank will succeed on the merits of its appeal.
   Harm to Others and the Public Interest.
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The Board will consider the last two elements of a stay together. Despite the Bank's claims that it is improving, and thus warding off insolvency, the evidence shows that the Bank's weak capital structure (including its high level of adversely classified assets to total equity capital and reserves) jeopardizes the deposit insurance fund. The Bank has never proposed an adequate plan to infuse necessary additional capital, and does not propose one now. Thus, the continuing risk to the deposit insurance fund means that the public interest would be harmed, not served, by staying the order termination the Bank's deposit insurance.

   [.2] Conclusion. Although the Bank may be irreparably harmed if a stay pending judicial review were not to be granted, that is outweighed by the fact that the Bank is unlikely to succeed on the merits and that the public interest would be ill-served by granting the stay.
   Accordingly, it is hereby ORDERED that Tarrant Bank's Motion for Stay of the Order Terminating Federal Deposit Insurance is DENIED. The provisions of this Order shall remain effective and enforceable except to the extent that, and until such other time as, any provision of the Order shall be modified, terminated, suspended, or set aside by the FDIC or a court of competent jurisdiction.
   By direction of the Board of Directors.
   Dated at Washington, D.C. this 17th day of August, 1993.
   /s/ Robert E. Feldman
   Deputy Executive Secretary

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