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San Francisco Region Director's College Computer- Based Training
Composite Rating and Enforcement Actions
Ratings are used by regulators to distinguish between various levels of supervisory concern, and any bank with a composite rating of "3" or worse is viewed as having heightened supervisory concern. Regulators can initiate two different corrective actions to address those weaknesses; they are formal and informal actions. Informal Enforcement Actions
Informal actions may be in the form of a Board Resolution or Memorandum of Understanding (MOU). They are typically used for banks assigned a composite rating of "3", but can be used for any bank requiring corrective action. In these cases, informal actions are viewed as voluntary corrective administrative actions and represent an alternative to formal actions. The goal is to obtain corrective action by identifying the bank's problem areas and establishing responsibility for ensuring that deficiencies are addressed.
A Board Resolution is a commitment developed and adopted by the board (often at the request of the regulators). The resolution directs management to take corrective action and, while the FDIC is not a party to the resolution, it may approve or accept it as a means of initiating corrective action.
An MOU is an informal agreement between the bank and the regulators. The MOU is used when the institution has not deteriorated to the point where it warrants formal administrative action.Formal Enforcement Actions
Banks with composite ratings of "4" or "5", by definition, have problems so severe that formal action is warranted. This will likely consist of a Cease and Desist Order or, under the most severe circumstances, initiation of insurance termination proceedings. Additionally, a formal enforcement action may be necessary for banks with a composite rating of "3" when it is believed that bank management is unwilling to take the necessary corrective actions or has failed to comply with the provisions of an existing MOU.
What do you think is the appropriate enforcement action for First State Bank?
The CAMELS components and the composite rating will be disclosed to management and the board at the exit meetings held at the conclusion of the examination. At this point, the ratings are tentative and subject to a secondary level of review. After the secondary review, a copy of the Report of Examination, including the final CAMELS ratings, will be provided to the bank. The Report, however, remains the property of the FDIC and is not to be shared with anyone outside of the bank per Part 309 of the FDIC Rules and Regulations. The FDIC will allow agents of the bank to review the report without prior FDIC approval, but only if it is necessary for purposes of their employment (accountants, attorneys, or credit review specialists).
|Last Updated 06/29/2005||Supervision@fdic.gov|