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FDIC Enforcement Decisions and Orders |
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A Notice of Assessment of Civil Money Penalties against bank directors was dismissed because it wasn't shown that loans made to bank insiders were extended on preferential terms. Loans with an 11% interest rate are not preferential when made to bank insiders if other loans to non-insiders are extended at the same or lower interest rates and the loans are made in consideration of the creditworthiness of the borrowers, even though the bulk of loans extended by the bank during the same time period are in the 1314% interest rate range.
[.1] Regulation OCivil Money Penalties Assessed for Violation
[.2] Regulation OLoans to InsidersPreferential Terms
In the Matter of * * * and * * * ,
DECISION
The Board of Directors has reviewed the record in this matter, including the Administrative Law Judge's Recommended Decision and Order (appended hereto). We have also examined the record in light of all the Federal Deposit Insurance Corporation's exceptions, and find that none require a modification of the Recommended Decision and Order. Based upon the record as a whole, we conclude that the Recommended Decision and Order are fully supported by the evidence. Therefore, we affirm the Recommended Decision and Order.
ORDER
IT IS ORDERED, that the Notice of Assessment of Civil Money Penalties, Findings of Fact and Conclusions of Law, Order to Pay and Notice of Hearing be, and the same hereby is, dismissed.
/s/ Hoyle L. Robinson
RECOMMENDED DECISION AND
WILLIAM A. GERSHUNY, Administrative Law Judge: A hearing was conducted in * * * , on December 2224, 1986, at the request of Respondents, on Notice of Assessment of Civil Money Penalties issued on June 11, 1986, pursuant to Section 18(j)(3) of the Federal Deposit Insurance Act. 12 U.S.C. 1828(j)(3). Penalties of $4500, $1000 and $4500 respectively were imposed in the Notice. At my suggestion, counsel for the parties presented closing arguments in lieu of post-hearing briefs, and were afforded the opportunity to file letter-briefs citing supplemental authorities, if any. None was submitted by any party.
I. Jurisdiction
The Notice alleges, Respondents admit, and I find that both the Bank of * * * , an insured state nonmember bank, and Respondents, as executive officers and/or directors of the Bank, are subject to the Federal Deposit Insurance Act, 12 U.S.C. 18111831, and to the jurisdiction of the FDIC.
II. The Alleged Violations
The Notice alleges three credit extensions in violation of Section 215.4(a)(1) of Regulation O: two loans with a preferential interest rate of 11%, the other, a participation in a real estate loan, with a preferential interest rate of 11% and a 30-year term. Respondents deny any violation of Regulation O, contending that the same or substantially the same terms were offered non-insider borrowers during the relevant period of time. In the alternative, they argue that the penalties proposed by the FDIC are excessive.
[.1]Regulation O, promulgated by the Federal Reserve Board to implement Sec. 22(h)(3) of the Federal Reserve Act, 12 U.S.C. 375b, and made applicable to insured state nonmember banks by Sec. 337.3 of FDIC Rules and Regulations, is intended to curb the granting of preferential credit terms to bank "insiders" to the detriment of shareholders and depositors. Section 215.4(a)(1), at issue here, tracks the statutory language and, in relevant part, provides:
[.2]The fact that Congressas well as the framers of the regulationfound it necessary to couch this important proscription in the most general terms is clear evidence that it deemed the problem of insider credit abuse too complex and filled with too many variables to be amendable to a mechanical solution. More elastic terms than "substantially the same," "prevailing," "at the time," and "comparable," are hardly to be found in the English language. The conclusion thus seems inescapable: it is the spirit of the regulation the elimination of credit preferences rather than its phraseology that was intended to serve as the focus of enforcement. With this approach, the initial
{{4-1-90 p.A-1116}}test of compliance thus becomes both simple to understand and simple to enforce: is the specific credit term extended to the insider more favorable than that offered during the relevant period to other bank customers in comparable transactions? If other borrowers receive the same term, the insider transaction is not violative of Regulation O. If the term is extended only to the insider, as in the case of the * * * loan, discussed below, a further analysis of the credit terms may be required to determine compliance.
RECOMMENDED ORDER
IT IS ORDERED that the Notice of Assessment of Civil Money Penalties be, and the same hereby is, DISMISSED.
/s/ WILLIAM A. GERSHUNY |
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Last Updated 6/6/2003 | legal@fdic.gov |