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U.S. Regulatory System Stressed

Recent regulatory activity

February 9, 2009

By staff

Dozens of U.S. financial institutions have recently faced the wrath of regulators. But financial services regulators are inadequately prepared to tackle the problems of today's financial markets, a new government report said.

The Federal Reserve Board last week announced that it entered a written agreement with Sun American Bancorp to strengthen oversight of its management, conserve capital and improve its capital position. The fed seeks a new set of lending guidelines from the company, which must immediately charge-off assets addressed in a prior examination. Sun American must report back about its progress.

Similar agreements were reached by the Federal Reserve Banks with First Co. in Cody, Wyo.; Firstcity Bancorp Inc. of Stockbridge, Ga.; Northpointe Bancshares Inc. in Grand Rapids, Mich.; and America West Bank Members, L.C., in Layton, Utah. Each of the companies is required to conserve capital, improve compliance and report back about their progress.

Another institution, New Frontier Bancorp of Greeley, Colo., was additionally required to prepare an acceptable capital plan.

An agreement between the fed and Elmwood Financial Corp. and Bank of Elmwood, both in Racine, Wis., requires improvements to management oversight, credit management and asset quality. The bank must also write-off assets designated in a prior examination, conserve capital and improve overall lending operations.

The fed terminated a written agreement with Exchange Bank of Missouri in Fayette.

The Office of the Comptroller of the Currency announced in January that a cease-and-desist order was issued against The First National Bank of Valentine in Valentine, Neb.

Formal agreements were reached between the OCC and Mission Oaks National Bank in Temecula, Calif.; Seacoast National Bank in Stuart, Fla.; First National Bank of Georgia in Carrollton; The First National Bank in Tremont, Ill.; Cumberland Valley National Bank & Trust Co. in East Bernstadt, Ky.; and First National Bank of Platteville, Wis.

A removal-prohibition order was issued by the OCC against Melani Burleson of The First Liberty National Bank in Liberty, Texas.

The OCC said it terminated formal agreements against Citic Ka Wah Bank Limited in Alhambra, Calif.; The First National Bank in Mulberry Grove, Ill.; Citic Ka Wah Bank Limited in New York; The First National Bank of Jeffersonville, N.Y.; and The First National Bank - Fox Valley in Neenah, Wis. A cease-and-desist order was terminated against Continental National Bank of Miami.

The Federal Deposit Insurance Corporation disclosed last month that cease-and-desist orders were issued against the following companies:

  • Discovery Bank, San Marcos, Calif.;
  • New Frontier Bank, Greeley, Colo.;
  • CompuCredit Corp., Atlanta, Ga., as an institution-affiliated party of Columbus Bank and Trust Co., Columbus, Ga., First Bank of Delaware, Wilmington, Del., and First Bank & Trust, Brookings, S.D.;
  • Bank of Lenox, Lenox, Ga.;
  • The Tattnall Bank, Reidsville, Ga.;
  • Strategic Capital Bank, Champaign, Ill.;
  • West Suburban Bank, Lombard, Ill.;
  • Corn Belt Bank and Trust Co., Pittsfield, Ill.;
  • The First State Bank of Burlingame, Burlingame, Kan.;
  • Farmers Deposit Bank of Middleburg Inc., Middleburg, Ky.;
  • Alliance Banking Co., Winchester, Ky.;
  • Mainstreet Bank, Forest Lake, Minn.;
  • Oakland Deposit Bank, Oakland, Tenn.;
  • Town Center Bank, Coppell, Texas; and
  • Transportation Alliance Bank, Inc., Ogden, Utah.

A prompt corrective action was taken against First Covenant Bank of Norcross, Ga., the FDIC reported.

The FDIC said it issued removal-and-prohibition orders against the following individuals:

  • Center Bank, Los Angeles, against Jehee Choi aka Clara Choi;
  • Putnam Fiduciary Trust Co., Boston, against Karnig H. Durgarian, Jr.;
  • Bank of Ash Grove, Ash Grove, Mo., against Terry A. Bridges;
  • Bank Leumi USA, New York, against Victor P. Machado;
  • Branch Banking and Trust Co., Winston Salem, N.C., against Matthew Bird;
  • Citizens Bank of Pennsylvania, Philadelphia, against Brittany M. Walker;
  • Bank Rhode Island, Providence, R.I., against David M. Carpenter; and
  • America West Bank, Layton, Utah, against Anna S. Padlo.

Civil money penalties were issued against the following institutions by the FDIC:

  • Monterey County Bank, Monterey, Calif., in the amount of $1,400;
  • CompuCredit Corp., Atlanta, Ga., as an institution-affiliated party of Columbus Bank and Trust Co., Columbus, Ga., First Bank of Delaware, Wilmington, Del., and First Bank & Trust Brookings, S.D.;
  • Farmers State Bank of Alto Pass, Ill, in the amount of $6,100;
  • Hoyne Savings Bank, Chicago, in the amount of $2,350;
  • Mutual Bank, Harvey, Ill., in the amount of $26,250;
  • Peoples Bank of Commerce, Cambridge, Minn., in the amount of $4,000;
  • Randall State Bank, Randall, Minn., in the amount of $14,500;
  • Citizens Bank, Carthage, Tenn., in the amount of $6,000;
  • Mountain Valley Bank, Dunlap, Tenn., in the amount of $3,655;
  • Seattle Savings Bank, Seattle, in the amount of $8,500; and
  • United Bank, Osseo, Wis., in the amount of $6,850.

Cease-and-desist orders were terminated against Silvergate Bank in La Jolla, Calif.; All American Bank in Des Plaines, Ill.; and First American International Bank in Brooklyn, N.Y. The FDIC also terminated cease-and-desist orders against Franklin Bank, S.S.B., in Houston, and Sanderson State Bank in Sanderson, Texas.

The Center for Responsible Lending issued a scathing announcement about the Office of Thrift Supervision's failure "in its responsibility to oversee the nation's thrift institutions and protect the public from reckless lending practices." The group called for the elimination of the OTS by folding it into other federal banking regulators.

The center claims the OTS allowed the institutions it regulated -- including Washington Mutual and IndyMac -- to engage in increasingly more risky lending -- leading to the collapse of thrifts with assets totaling $354 billion and the dislocation of thrifts with another $350 billion.

The existing financial regulatory framework has not kept pace with major developments in U.S. financial markets, a report last week from the Government Accounting Office said. Increasingly complex retail mortgage and credit products have challenged regulators and investors alike.

The 150-year-old U.S. financial regulatory system was described as "a fragmented and complex arrangement of federal and state regulators."

Financial service companies are overseen by almost a dozen federal agencies, numerous self-regulatory organizations and hundreds of state agencies, GAO said. Regulators are struggling to mitigate systemic risks from large and interconnected financial conglomerates. Meanwhile, the activities of less-regulated market players -- including nonbank mortgage lenders, hedge funds and credit-rating agencies -- are impacting institutions under regulation.

"As the nation finds itself in the midst of one of the worst financial crises ever, it has become apparent that the regulatory system is ill-suited to meet the nation's needs in the 21st century," the report said.

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