In General
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Typically
used if the regulators feel that the problem(s) are not too severe and may be
resolved quickly through informal action
There
are a variety of informal enforcement actions used by some or all of the
agencies
- Some reflect negotiations between the regulators
and the banks
- Others are issued unilaterally
- Actions mentioned in the agency itemization below
are illustrative only, since informal enforcement actions can, by their very
nature, be devised and adapted to respond to particular circumstances
Informal
actions are not, generally speaking, directly enforceable by the regulators
either administratively or through the courts
- They may, however, serve as the predicate for
more formal actions should those become necessary
First
response of regulators to problems uncovered during the examination process or
from the reports filed by insured institutions usually occurs during the exam
itself
- During the exams there are ongoing communications
between the examiners and bank management
- Through these communications, problems can often
be resolved by the time of the meeting of the examiners with the bank's board
that occurs at the end of the examination
- Even after the on-site presence of the examiners
has ended, and before the report is finalized, there may be ongoing discussions
and correspondence in which the institution attempts to stave off further agency
action by rebutting negative findings and/or assuring the regulators of
cooperation in correcting remaining problems
Among
the factors that influence whether an action
will proceed informally or will be handled in a formal manner are
- Bank management's responses to examiners during
and after the exam
- Severity of the problems uncovered
- Regulator's experience with and resultant
confidence in the bank management's willingness and/or ability to voluntarily
effect correction
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OCC
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The
OCC will occasionally ask a bank to address its problems by
- Passing a Board resolution
- Signing a commitment letter drafted by the OCC
- Asking the Board to enter into a Memorandum of
Understanding MOU drafted by the OCC
OCC
may also use corporate leverage, the withholding or conditioning of approvals
as part of the corporate approval process, to enforce its requirements
Supervisory
Directives have been utilized by the OCC in connection with Y2K
preparedness
Appeals
- Informal
enforcement actions and their underlying bases are subject to the OCC appeals
process
Useful
OCC guidance may be found at
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FDIC
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The
most common informal enforcement actions used by the FDIC are
Board
Resolution
- An informal commitment developed and adopted by a
financial institution's Board of Directors or trustees
- Often done at the request of an FDIC Regional
Director
- Directs the institution's personnel to take
corrective action regarding specified deficiencies
- FDIC is not a party to the Resolution, but
approves and accepts the Resolution as a means to implement corrective action
Memorandum
of Understanding
- Informal agreement between an institution and the
FDIC
- Drafted by FDIC staff
- Designed to address and correct weaknesses in an
institution's compliance or CRA posture
- Generally used in place of a Board Resolution
when FDIC has reason to believe that a Board Resolution would not adequately
address the deficiencies noted during an examination
Appeals
SEC_CODE_REF_0090001192884
- Determinations to initiate informal enforcement
actions such as Memoranda of Understanding are not appealable to the FDIC's
Supervisory Appeals Review Committee
- However, the determinations upon which such
actions may be based (e.g. loan classifications) may be appealed if otherwise
qualifying
- Filing of an appeal will not affect, delay or
impede any informal enforcement action in progress, not will it affect the
FDIC's authority to take any supervisory or enforcement action against that
institution
- See FDIC's
Guidelines for Appeals of Material Supervisory Determinations
Useful
guidance may be found in
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OTS
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The
informal enforcement actions utilized by the
OTS include
- Board of Directors Resolutions
- Supervisory Letters - a letter signed by the
Board of Directors or management making specific commitments to take corrective
action
- Supervisory Directives
Notice
of deficiency and request for safety and soundness plan
-
May be used if an insured savings association failed to meet the safety and
soundness standards prescribed by
section 39
of the Federal Deposit Insurance Act
-
If the association fails to submit or to implement an acceptable plan, the OTS
may issue a safety and soundness order, pursuant to section 39
Individual
Minimum Capital Requirements Directive IMCR - See
12 CFR Part 567.3
- May establish on a case-by-case basis higher
individual minimum capital requirements than would otherwise be required under
12 CFR 567.2
- Failure to satisfy an IMCR may constitute grounds
for issuance of a capital directive or other formal enforcement action
Appeals
Institutions
may appeal material supervisory determinations such as the following:
- Examination ratings
- Adequacy of loan loss reserves
- Significant loan classifications
- Categorization of an S&L holding company and the
assignment of examination ratings
Useful
guidance may be found in
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NCUA
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The
NCUA's informal enforcement mechanisms include
Document
of Resolution DOR
- Developed by the examiner and credit union management during the examination and
used for major problems that could affect the credit unions financial condition
or interfere with its daily operations
- Contains
the agreements reached between the examiner, credit union officials, and
management for correction of the problems identified therein
- After agreement is reached, the DOR is to be approved at the exit meeting by a
vote of the board of directors of the credit union
Letters
of Understanding and Agreement LUA
- Used as both a supervisory tool and as an
informal enforcement action
- Issued by the NCUA regional director if problems
are not resolved by the DOR
- Signed by the credit union's manager and board of
directors
- May be published or unpublished
- More formal enforcement action may be taken if
the credit union violates the terms of a published LUA
- In the case of an unpublished LUA, more
formal action may be taken if the credit union fails to comply with the LUA and
conducts itself in a way that constitutes a safety and soundness violation or
violation of law or regulation
Regional
Director Letters
- Preliminary warning letters
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