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Each depositor insured to at least $250,000 per insured bank

FDIC Law, Regulations, Related Acts

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2000 - Rules and Regulations


Subpart B—Prompt Corrective Action

§ 325.101  Authority, purpose, scope, other supervisory authority, and disclosure of capital categories.

(a)  Authority. This subpart is issued by the FDIC pursuant to section 38 (section 38) of the Federal Deposit Insurance Act (FDI Act), as added by section 131 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (Pub. L. 102--242, 105 Stat. 2236 (1991)) (12 U.S.C. 1831o).

(b)  Purpose. Section 38 of the FDI Act establishes a framework of supervisory actions for insured depository institutions that are not adequately capitalized. The principal purpose of this subpart is to define, for FDIC-insured state-chartered nonmember banks, the capital measures and capital levels, and for insured branches of foreign banks, comparable asset-based measures and levels, that are used for determining the supervisory actions authorized under section 38 of the FDI Act. This subpart also establishes procedures for submission and review of capital restoration plans and for issuance and review of directives and orders pursuant to section 38.

(c)  Scope. This subpart implements the provisions of section 38 of the FDI Act as they apply to FDIC-insured state-chartered nonmember banks and insured branches of foreign banks for which the FDIC is the appropriate federal banking agency. Certain of these provisions also apply to officers, directors and employees of those insured institutions. In addition, certain provisions of this subpart apply to all insured depository institutions that are deemed critically undercapitalized.

(d)  Other supervisory authority. Neither section 38 nor this subpart in any way limits the authority of the FDIC under any other provision of law to take supervisory actions to address unsafe or unsound practices, deficient capital levels, violations of law, unsafe or unsound conditions, or other practices. Action under section 38 of the FDI Act and this subpart may be taken independently of, in conjunction with or in addition to any other enforcement action available to the FDIC, including issuance of cease and desist orders, capital directives, approval or denial of applications or notices, assessment of civil money penalties, or any other actions authorized by law.

(e)  Disclosure of capital categories. The assignment of a bank or insured branch under this subpart within a particular capital category is for purposes of implementing and applying the provisions of section 38. Unless permitted by the FDIC or otherwise required by law, no bank may state in any advertisement or promotional material its capital category under this subpart or that the FDIC or any other federal banking agency has assigned the bank to a particular capital category.

[Codified to 12 C.F.R. § 325.101]

[Section 325.101 added at 57 Fed. Reg. 44900, September 29, 1992, effective December 19, 1992]

§ 325.102  Notice of capital category.

(a)  Effective date of determination of capital category. A bank shall be deemed to be within a given capital category for purposes of section 38 of the FDI Act and this subpart as of the date the bank is notified of, or is deemed to have notice of, its capital category, pursuant to paragraph (b) of this section.

(b)  Notice of capital category. A bank shall be deemed to have been notified of its capital levels and its capital category as of the most recent date:

(1)  A Consolidated Report of Condition and Income (Call Report) is required to be filed with the FDIC;

(2)  A final report of examination is delivered to the bank; or

(3)  Written notice is provided by the FDIC to the bank of its capital category for purposes of section 38 of the FDI Act and this subpart or that the bank's capital category has changed as provided in § 325.103(d).

(c)  Adjustments to reported capital levels and capital category--(1)  Notice of adjustment by bank. A bank shall provide the appropriate FDIC regional director with written notice that an adjustment to the bank's capital category may have occurred no later than 15 calendar days following the date that any material event has occurred that would cause the bank to be placed in a lower capital category from the category assigned to the bank for purposes of section 38 and this subpart on the basis of the bank's most recent Call Report or report of examination.

(2)  Determination by the FDIC to change capital category. After receiving notice pursuant to paragraph (c)(1) of this section, the FDIC shall determine whether to change the capital category of the bank and shall notify the bank of the FDIC's determination.

[Codified to 12 C.F.R. § 325.102]

[Section 325.102 added at 57 Fed. Reg. 44900, September 29, 1992, effective December 19, 1992]

§ 325.103  Capital measures and capital category definitions.

(a)  Capital measures. For purposes of section 38 and this subpart the relevant capital measures shall be:

(1)  The total risk-based capital ratio;

(2)  The Tier 1 risk-based capital ratio; and

(3)  The leverage ratio.

(b)  Capital categories. For purposes of section 38 and this subpart, a bank shall be deemed to be:

(1)  Well capitalized if the bank:

(i)  Has a total risk-based capital ratio of 10.0 percent or greater; and

(ii)  Has a Tier 1 risk-based capital ratio of 6.0 percent or greater; and

(iii)  Has a leverage ratio of 5.0 percent or greater; and

(iv)  Is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the FDIC pursuant to section 8 of the FDI Act (12 U.S.C. 1818), the International Lending Supervision Act of 1983 (12 U.S.C. 3907), or section 38 of the FDI Act (12 U.S.C. 1831o), or any regulation thereunder, to meet and maintain a specific capital level for any capital measure.

(2)  Adequately capitalized if the bank:

(i)  Has a total risk-based capital ratio of 8.0 percent or greater; and

(ii)  Has a Tier 1 risk-based capital ratio of 4.0 percent or greater; and

(iii)  Has:

(A)  A leverage ratio of 4.0 percent or greater; or

(B)  A leverage ratio of 3.0 percent or greater if the bank is rated composite 1 under the CAMELS rating system in the most recent examination of the bank and is not experiencing or anticipating significant growth; and

(iv)  Does not meet the definition of a well capitalized bank.

(3)  Undercapitalized if the bank:

(i)  Has a total risk-based capital ratio that is less than 8.0 percent; or

(ii)  Has a Tier 1 risk-based capital ratio that is less than 4.0 percent or

(iii)(A)  Except as provided in paragraph (b)(3)(iii)(B) of this section, has a leverage ratio that is less than 4.0 percent; or

(B)  Has a leverage ratio that is less than 3.0 percent if the bank is rated composite 1 under the CAMELS rating system in the most recent examination of the bank and is not experiencing or anticipating significant growth.

(4)  Significantly undercapitalized if the bank has:

(i)  A total risk-based capital ratio that is less than 6.0 percent; or

(ii)  A Tier 1 risk-based capital ratio that is less than 3.0 percent; or

(iii)  A leverage ratio that is less than 3.0 percent.

(5)  Critically undercapitalized if the insured depository institution has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent.

(c)  Capital categories for insured branches of foreign banks. For purposes of the provisions of section 38 and this subpart, an insured branch of a foreign bank shall be deemed to be:

(1)  Well capitalized if the insured branch:

(i)  Maintains the pledge of assets required under § 347.209 of this chapter; and

(ii)  Maintains the eligible assets prescribed under § 347.210 of this chapter at 108 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities; and

(iii)  Has not received written notification from:

(A)  The OCC to increase its capital equivalency deposit pursuant to 12 CFR 28.15(b), or to comply with asset maintenance requirements pursuant to 12 CFR 28.20; or

(B)  The FDIC to pledge additional assets pursuant to § 347.209 of this chapter or to maintain a higher ratio of eligible assets pursuant to § 347.210 of this chapter.

(2)  Adequately capitalized if the insured branch:

(i)  Maintains the pledge of assets required under § 347.209 of this chapter; and

(ii)  Maintains the eligible assets prescribed under § 347.210 of this chapter at 106 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities; and

(iii)  Does not meet the definition of a well capitalized insured branch.

(3)  Undercapitalized if the insured branch:

(i)  Fails to maintain the pledge of assets required under § 347.209 of this chapter; or

(ii)  Fails to maintain the eligible assets prescribed under § 347.210 of this chapter at 106 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities.

(4)  Significantly undercapitalized if it fails to maintain the eligible assets prescribed under § 347.210 of this chapter at 104 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities.

(5)  Critically undercapitalized if it fails to maintain the eligible assets prescribed under § 347.210 of this chapter at 102 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities.

(d)  Reclassifications based on supervisory criteria other than capital. The FDIC may reclassify a well capitalized bank as adequately capitalized and may require an adequately capitalized bank or an undercapitalized bank to comply with certain mandatory or discretionary supervisory actions as if the bank were in the next lower capital category (except that the FDIC may not reclassify a significantly undercapitalized bank as critically undercapitalized) (each of these actions are hereinafter referred to generally as "reclassifications") in the following circumstances:

(1)  Unsafe or unsound condition. The FDIC has determined, after notice and opportunity for hearing pursuant to § 308.202(a) of this chapter, that the bank is in unsafe or unsound condition; or

(2)  Unsafe or unsound practice. The FDIC has determined, after notice and opportunity for hearing pursuant to § 308.202(a) of this chapter, that, in the most recent examination of the bank, the bank received and has not corrected a less-than-satisfactory rating for any of the categories of asset quality, management, earnings, or liquidity.

[Codified to 12 C.F.R. § 325.103]

[Section 325.103 added at 57 Fed. Reg. 44901, September 29, 1992, effective December 19, 1992; amended at 63 Fed. Reg. 17074, April 8, 1998, effective July 1, 1998; 66 Fed. Reg. 59653, November 29, 2001, effective January 1, 2002; 70 Fed. Reg. 17559, April 6, 2005, effective July 1, 2005]

§ 325.104  Capital restoration plans.

(a)  Schedule for filing plan--(1)  In general. A bank shall file a written capital restoration plan with the appropriate FDIC regional director within 45 days of the date that the bank receives notice or is deemed to have notice that the bank is undercapitalized, significantly undercapitalized, or critically undercapitalized, unless the FDIC notifies the bank in writing that the plan is to be filed within a different period. An adequately capitalized bank that has been required pursuant to § 325.103(d) of this subpart to comply with supervisory actions as if the bank were undercapitalized is not required to submit a capital restoration plan solely by virtue of the reclassification.

(2)  Additional capital restoration plans. Notwithstanding paragraph (a)(1) of this section, a bank that has already submitted and is operating under a capital restoration plan approved under section 38 and this subpart is not required to submit an additional capital restoration plan based on a revised calculation of its capital measures or a reclassification of the institution under § 325.103 unless the FDIC notifies the bank that it must submit a new or revised capital plan. A bank that is notified that it must submit a new or revised capital restoration plan shall file the plan in writing with the appropriate FDIC regional director within 45 days of receiving such notice, unless the FDIC notifies the bank in writing that the plan must be filed within a different period.

(b)  Contents of plan. All financial data submitted in connection with a capital restoration plan shall be prepared in accordance with the instructions provided on the Call Report, unless the FDIC instructs otherwise. The capital restoration plan shall include all of the information required to be filed under section 38(e)(2) of the FDI Act. A bank that is required to submit a capital restoration plan as a result of a reclassification of the bank pursuant to § 325.103(d) of this subpart shall include a description of the steps the bank will take to correct the unsafe or unsound condition or practice. No plan shall be accepted unless it includes any performance guarantee described in section 38(e)(2)(C) of the FDI Act by each company that controls the bank.

(c)  Review of capital restoration plans. Within 60 days after receiving a capital restoration plan under this subpart, the FDIC shall provide written notice to the bank of whether the plan has been approved. The FDIC may extend the time within which notice regarding approval of a plan shall be provided.

(d)  Disapproval of capital plan. If a capital restoration plan is not approved by the FDIC, the bank shall submit a revised capital restoration plan within the time specified by the FDIC. Upon receiving notice that its capital restoration plan has not been approved, any undercapitalized bank (as defined in § 325.103(b) of this subpart) shall be subject to all of the provisions of section 38 and this subpart applicable to significantly undercapitalized institutions. These provisions shall be applicable until such time as a new or revised capital restoration plan submitted by the bank has been approved by the FDIC.

(e)  Failure to submit capital restoration plan. A bank that is undercapitalized (as defined in § 325.103(b) of this subpart) and that fails to submit a written capital restoration plan within the period provided in this section shall, upon the expiration of that period, be subject to all of the provisions of section 38 and this subpart applicable to significantly undercapitalized institutions.

(f)  Failure to implement capital restoration plan. Any undercapitalized bank that fails in any material respect to implement a capital restoration plan shall be subject to all of the provisions of section 38 and this subpart applicable to significantly undercapitalized institutions.

(g)  Amendment of capital restoration plan. A bank that has filed an approved capital restoration plan may, after prior written notice to and approval by the FDIC, amend the plan to reflect a change in circumstance. Until such time as a proposed amendment has been approved, the bank shall implement the capital restoration plan as approved prior to the proposed amendment.

(h)  Performance guarantee by companies that control a bank--(1)  Limitation on liability--(i)  Amount limitation. The aggregate liability under the guarantee provided under section 38 and this subpart for all companies that control a specific bank that is required to submit a capital restoration plan under this subpart shall be limited to the lesser of:

(A)  An amount equal to 5.0 percent of the bank's total assets at the time the bank was notified or deemed to have notice that the bank was undercapitalized; or

(B)  The amount necessary to restore the relevant capital measures of the bank to the levels required for the bank to be classified as adequately capitalized, as those capital measures and levels are defined at the time that the bank initially fails to comply with a capital restoration plan under this subpart.

(ii)  Limit on duration. The guarantee and limit of liability under section 38 and this subpart shall expire after the FDIC notifies the bank that it has remained adequately capitalized for each of four consecutive calendar quarters. The expiration or fulfillment by a company of a guarantee of a capital restoration plan shall not limit the liability of the company under any guarantee required or provided in connection with any capital restoration plan filed by the same bank after expiration of the first guarantee.

(iii)  Collection on guarantee. Each company that controls a given bank shall be jointly and severally liable for the guarantee for such bank as required under section 38 and this subpart, and the FDIC may require and collect payment of the full amount of that guarantee from any or all of the companies issuing the guarantee.

(2)  Failure to provide guarantee. In the event that a bank that is controlled by any company submits a capital restoration plan that does not contain the guarantee required under section 38(e)(2) of the FDI Act, the bank shall, upon submission of the plan, be subject to the provisions of section 38 and this subpart that are applicable to banks that have not submitted an acceptable capital restoration plan.

(3)  Failure to perform guarantee. Failure by any company that controls a bank to perform fully its guarantee of any capital plan shall constitute a material failure to implement the plan for purposes of section 38(f) of the FDI Act. Upon such failure, the bank shall be subject to the provisions of section 38 and this subpart that are applicable to banks that have failed in a material respect to implement a capital restoration plan.

[Codified to 12 C.F.R. § 325.104]

[Section 325.104 added at 57 Fed. Reg. 44901, September 29, 1992, effective December 19, 1992; amended at 57 Fed. Reg. 48426, October 23, 1992]

§ 325.105  Mandatory and discretionary supervisory actions under section 38.

(a)  Mandatory supervisory actions--(1)  Provisions applicable to all banks. All banks are subject to the restrictions contained in section 38(d) of the FDI Act on payment of capital distributions and management fees.

(2)  Provisions applicable to undercapitalized, significantly undercapitalized, and critically undercapitalized banks. Immediately upon receiving notice or being deemed to have notice, as provided in § 325.102 of this subpart, that the bank is undercapitalized, significantly undercapitalized, or critically undercapitalized, the bank shall become subject to the provisions of section 38 of the FDI Act:

(i)  Restricting payment of capital distributions and management fees (section 38(d));

(ii)  Requiring that the FDIC monitor the condition of the bank (section 38(e)(1));

(iii)  Requiring submission of a capital restoration plan within the schedule established in this subpart (section 38(e)(2));

(iv)  Restricting the growth of the bank's assets (section 38(e)(3)); and

(v)  Requiring prior approval of certain expansion proposals (section 38(e)(4)).

(3)  Additional provisions applicable to significantly undercapitalized, and critically undercapitalized banks. In addition to the provisions of section 38 of the FDI Act described in paragraph (a)(2) of this section, immediately upon receiving notice or being deemed to have notice, as provided in § 325.102 of this subpart, that the bank is significantly undercapitalized, or critically undercapitalized, or that the bank is subject to the provisions applicable to institutions that are significantly undercapitalized because the bank failed to submit or implement in any material respect an acceptable capital restoration plan, the bank shall become subject to the provisions of section 38 of the FDI Act that restrict compensation paid to senior executive officers of the institution (section 38(f)(4)).

(4)  Additional provisions applicable to critically undercapitalized institutions. (i)  In addition to the provisions of section 38 of the FDI Act described in paragraphs (a)(2) and (a)(3) of this section, immediately upon receiving notice or being deemed to have notice, as provided in § 325.102 of this subpart, that the insured depository institution is critically undercapitalized, the institution is prohibited from doing any of the following without the FDIC's prior written approval:

(A)  Entering into any material transaction other than in the usual course of business, including any investment, expansion, acquisition, sale of assets, or other similar action with respect to which the depository institution is required to provide notice to the appropriate federal banking agency;

(B)  Extending credit for any highly leveraged transaction;

(C)  Amending the institution's charter or bylaws, except to the extent necessary to carry out any other requirement of any law, regulation, or order;

(D)  Making any material change in accounting methods;

(E)  Engaging in any covered transaction (as defined in section 23A(b) of the Federal Reserve Act (12 U.S.C. 371c(b));

(F)  Paying excessive compensation or bonuses;

(G)  Paying interest on new or renewed liabilities at a rate that would increase the institution's weighted average cost of funds to a level significantly exceeding the prevailing rates of interest on insured deposits in the institution's normal market areas; and

(H)  Making any principal or interest payment on subordinated debt beginning 60 days after becoming critically undercapitalized except that this restriction shall not apply, until July 15, 1996, with respect to any subordinated debt outstanding on July 15, 1991, and not extended or otherwise renegotiated after July 15, 1991.

(ii)  In addition, the FDIC may further restrict the activities of any critically undercapitalized institution to carry out the purposes of section 38 of the FDI Act.

(5)  Exception for certain savings associations. The restrictions in paragraph (a)(4) of this section shall not apply, before July 1, 1994, to any insured savings association if:

(i)  The savings association had submitted a plan meeting the requirements of section 5(t)(6)(A)(ii) of the Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)) prior to December 19, 1991;

(ii)  The Director of OTS had accepted the plan prior to December 19, 1991; and

(iii)  The savings association remains in compliance with the plan or is operating under a written agreement with the appropriate federal banking agency.

(b)  Discretionary supervisory actions. In taking any action under section 38 that is within the FDIC's discretion to take in connection with:

(1)  An insured depository institution that is deemed to be undercapitalized, significantly undercapitalized, or critically undercapitalized, or has been reclassified as undercapitalized, or significantly undercapitalized; or

(2)  An officer or director of such institution,

the FDIC shall follow the procedures for issuing directives under §§ 308.201 and 308.203 of this chapter, unless otherwise provided in section 38 or this subpart

[Codified to 12 C.F.R. § 325.105]

[Section 325.105 added at 57 Fed. Reg. 44902, September 29, 1992, effective December 19, 1992]


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