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FDIC Enforcement Decisions and Orders |
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Bank that engaged in unsafe or unsound banking practices ordered to increase its capital within 180 days from the effective date of the final order despite the bank's insistence that the 180-day time period was too short. The FDIC reasoned that the bank's deteriorating condition mandated the imposition of the shorter period.
[.1] Cease and Desist OrderIncrease CapitalTime
[.2] Cease and Desist OrderIncrease CapitalAdditional Time Denied
[.3] Cease and Desist OrderFDIC Authority to Issue
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BACKGROUND
On October 5, 1983, the Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Charges and of Hearing ("Notice") to the Bank of * * * ("Bank") pursuant to Section 8(b)(1)) of the Federal Deposit Insurance Act ("Act") 12 U.S.C. § 1818(b)(1) and Part 308 of the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). The Notice charged the Bank with engaging in unsafe or unsound banking practices and violating certain laws and regulations. The general thrust of the allegations was that the Bank was deficient with respect to capital adequacy, quality of assets, management performance, loan loss reserves and liquidity.
FINDINGS OF FACT
In the Recommended Decision, the Administrative Law Judge made 24 Findings of Fact. The FDIC excepted because the Administrative Law Judge failed to adopt FDIC's Proposed Findings of Fact ("PFF") Nos. 7, 9, 11, 17, 19, and 21 through 24.
[.1] The significance of these Proposed Findings of Fact is that they bring into sharp focus the distressed condition of the Bank and the need for very rapid action to restore the Bank's capital account. The Bank's adjusted capital ratio was 3.78 percent on May 31, 1983. The FDIC examiner found losses of $402,000 for the period January 1, 1983 to May 31, 1983. In fact, the Bank's total losses for 1983 were admitted to be $2,600,000 (PFF 9). This amount would have to be deducted from the Bank's capital account (PFF 11). There was no evidence that the capital account had been increased in any amount between May 31, 1983 and December 31, 1983. The obvious result was that the Bank's adjusted capital ratio, as of January 17, 1984, was probably less than 3.0 percent (PFF 9), and might have been at 2.5 percent or lower. (Tr. 171) These facts underscore the deterioration of the Bank illustrated by PFF 7 and indicate that the deterioration continued up to the date of the hearing. The net result of this, translated into a time frame for the augmentation of the Bank's capital account, was emphasized and re-emphazised at the hearing by Mr. * * *. His testimony, based on many years' experience in bank supervision, was that the Bank was in a very distressed condition, that it does not have the luxury of the extended time frame the Bank's witness suggested and that unless the momentum of the past is halted shortly, even the small capital cushion the Bank now has will soon be eroded by continued losses.
[.2] 1. The condition of the Bank has deteriorated over the period covered by the last three examinations conducted by the FDIC, as follows:
CONCLUSIONS OF LAW
As noted earlier, the Administrative Law Judge concluded that the Bank has committed the violations and engaged in the unsafe or unsound banking practices cited in the Notice. Based upon a review of the record, the Board concurs with and adopts this conclusion.
III. ARGUMENT
V. CONCLUSION
ORDER
Having found that the Bank has committed the offense in the Notice of Charges, the Administrative Law Judge adopted all of the FDIC's Proposed Cease and Desist Order, except for the provision requiring infusion of capital into the Bank within the 180-day period after the effective date of the Order. For reasons stated above, the Board concludes that the 180-day time period is appropriate and should be included in the Order rather than the Bank's April 30, 1985 deadline. Accordingly, the Board adopts the Order in the Recommended Decision except that the introductory part of Paragraph 2(a) of the affirmative action requirements is amended to read:
FDIC-83-223b
Recommended Decision
Statement of the Case
This administrative action was instituted by the Federal Deposit Insurance Corporation ("FDIC") on October 5, 1983, when it issued against the Bank of * * * ("Bank") a Notice of Charges and of Hearing pursuant to Section 8(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(b)(1); the "Act") and Part 308 of the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). The Notice charged the Bank with engaging in unsafe or unsound banking practices and violating certain laws and regulations. A proposed cease and desist order accompanied the Notice, requesting that the Bank take various affirmative actions concerning its banking practices. In its answer, the Bank declined to stipulate to issuance of the cease and desist order and instead made a request for a private hearing in accordance with the Federal Deposit Insurance Act. The Bank admitted jurisdiction and denied all other allegations.
Findings of Fact
1. The Bank of * * * is a corporation doing business under the laws of the State of * * * and has its principal place of business at * * *. As an insured, State nonmember bank, the Bank is subject to the Act (12 U.S.C. §§ 1811-1831d), the FDIC's Rules and Regulations (12 C.F.R. Chapter III) and the laws of the State of * * *.
Discussion
The Bank, in responding to the Notice of Charges and proposed order, takes no exception to the FDIC findings concerning its banking practices, nor does it generally oppose the proposed remedial measures. It does, however, oppose the required 180-day
{{4-1-90 p.A-306}}time frame during which the Bank would have to raise additional capital in the amount of $7 million.
ORDER
ORDERED, that the Bank of * * *, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank cease and desist from the following unsafe or unsound banking practices and violations:
CERTIFICATE OF SERVICE
I hereby certify that copies of this Recommended Decision issued by ALAN W. HEIFETZ, Chief Administrative Law Judge, Docket No. FDIC 83-223b, were mailed to the parties listed below on this 4th day of May, 1984, in the manner indicated.
REGULAR MAIL:
Arthur L. Beamon, Esquire
Alan J. Kaplan |
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Last Updated 6/6/2003 | legal@fdic.gov |