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Federal Regulatory Overhaul

Recent regulatory activity

March 26, 2009

By staff

One federal bank regulator reported a more than one-third increase in orders against financial institutions last year -- and this year is on track to nearly triple. As U.S. financial institutions continue to be pounded with regulatory orders, the Obama administration is calling for a major overhaul of the U.S. regulatory system.

In a statement before the House Financial Services Committee, the Federal Deposit Insurance Corporation's Martin J. Gruenberg said 142 cease-and-desist orders were issued during 2007, according to an FDIC transcript of his prepared statement. In addition, the FDIC issued 102 removal-and-prohibition-orders -- which ban individuals from banking.

Gruenberg said concerns about fraud had led to enforcement actions on 90 cases since 2007. The Office of the Inspector General has closed about 100 case investigations during the past two years, resulting in more than 230 indictments, 170 convictions and more than $530 million in fines, restitution and recovered money.

Comptroller of the Currency John C. Dugan testified before the House committee also. He said that his agency and other federal banking agencies do not have the authority to prosecute fraud and must refer cases on to the U.S. Department of Justice for prosecution.

Dugan noted that total OCC enforcement actions were 432 last year, up from 302 during 2007. He said 195 actions have been filed year-to-date Feb. 28, and 325 enforcement actions remain outstanding as of Feb. 17. Notifications of Prohibition Following Convictions for Crimes of Dishonesty numbered 211 during 2008 -- more than any other type of order. There were 54 Formal Agreements and 32 Removal/Prohibition Orders.

He testified that there were 182 problem banks as of Feb. 17. The number of problem banks has soared from 77 a year earlier.

U.S. Department of the Treasury Secretary Timothy Geithner outlined the Obama administration's regulatory reform plan in testimony today before the House committee, a Treasury statement said. The administration seeks to modernize the regulatory system, improve tools to fight a recurrence of the financial crisis and increase investor confidence.

A four-pronged approach includes addressing systemic risk, protecting consumers and investors, eliminating regulatory gaps and fostering international coordination. He called for higher capital standards and a single regulator over systemically important financial firms. Geithner also recommended the regulation of credit default swaps and the registration of all hedge funds.

A day earlier, Geithner proposed new legislation granting additional tools to address systemically significant financial institutions.

The Office of Thrift Supervision said last week that it plans to realign its regional structure to four supervisory regions that will better match the current geographic makeup of thrifts. It also plans to enhance supervision for institutions with more than $10 billion in assets under an assistant deputy director who is expected be selected by May.

The Mortgage Bankers Association Monday sent a letter to both houses of Congress calling for legislation that would establish a tough, new federal regulatory framework for mortgage lending to replace the patchwork of state and federal laws. The bill should reflect many aspects of the Home Owners Equity Protection Act and mandate disclosure of mortgage broker compensation.

A proposed Federal Mortgage Regulatory Agency would work in partnership with state regulators, MBA said.

Aside from a few concerns, the American Bankers Association said today that it supports a systemic regulator.

Frontier Financial Corp. said Tuesday that a cease-and-desist order was issued against it by the FDIC and the State of Washington Department of Financial Institutions. The Everett, Wash., bank-holding company agreed to changes in lending policies, administration and management.

Cooperative Bankshares Inc. reported last week that it also entered a cease-and-desist order with the FDIC and the North Carolina Commissioner of Banks. The bank is required to improve capital levels, develop a management plan and reduce concentrations of credit, among other requirements.

The Federal Reserve Board reported the following actions.

Name Location Order Type Date Docket No.
SPRING GROVE INVESTMENTS INC. Spring Grove, Minn. written agreement March 12 09-027-WA/RB-HC
SOCIÉTÉ GÉNÉRALE Paris, France written agreement March 4 09-009-WA/RB-FB
PREMIER BANCSHARES INC. Jefferson City, Mo. written agreement March 20 09-025-WA/RB-NC
PINE CITY BANCORPORATION INC Pine City, Minn. written agreement March 18 09-038-WA/RB-NC.
FNB HOLDING CO. West Des Moines, Iowa written agreement March 12 09-029-WA/RB-HC
THUNDER BANCORP INC. and THUNDER BANK Sylvan Grove, Kan. written agreement March 16 09-014-WA/RB-HC, 09-014-WA/RB-SM
Eagle National Holding Company aka JGB Financial Holding Co Miami termination of cease-and-desist order March 24 na
COLUMBIA COMMERCIAL BANCORP Hillsboro, Ore. written agreement March 18 09-024-WA/RB-HC
BANCMIDWEST CORP. St. Paul, Minn. written agreement March 20 Docket No. 09-023-WA/RB-HC
G. CRAIG CHUPIK, a former institution-affiliated party of PlainsCapital Bank Dallas order of prohibition and order of assessment of civil money penalty March 19 09-37-E-I

The OCC said last week that it issued orders against the following institutions.

Name Location Order Type Date Order No.
International City Bank, N.A.

Long Beach, Calif. cease-and-desist Feb. 12 2009-011
Silverton Bank, N.A. Atlanta cease-and-desist Feb. 26 2009-012
BC National Banks Butler, Mo. cease-and-desist Feb. 3 2009-013
Ohio Legacy Bank, N.A. Wooster, Ohio cease-and-desist Feb. 17 2009-014

Kimberly Baltz, First United Bank, N.A. Englewood, Colo. civil money penalty Feb. 12 2009-015

Martha Baltz, First United Bank, N.A. Englewood, Colo. civil money penalty Feb. 12 2009-016

Stephen Baltz, First United Bank, N.A. Englewood, Colo. civil money penalty Feb. 12 2009-017

Coast National Bank San Luis Obispo, Calif. formal agreement Feb. 10 2009-018

Pikes Peak National Bank Colorado Springs, Colo. formal agreement Feb. 27 2009-019
Patriot National Bank Stamford, Conn. formal agreement Feb. 9 2009-020
Unity National Bank Cartersville, Ga. formal agreement Feb. 3 2009-021
University National Bank Pittsburg, Kan. formal agreement Jan. 23 2009-022
Capitol National Bank Lansing, Mich. formal agreement Jan. 30 2009-023
Minnstar Bank N.A. Lake Crystal, Minn. formal agreement Feb. 25 2009-024
Rosemount National Bank Rosemount, Minn. formal agreement Feb. 20 2009-025
Mountain West Bank, N.A. Helena, Mont. formal agreement Jan. 15 2009-026
Mountain West Bank of Kalispell, N.A. Kalispell, Mont. formal agreement Jan. 15 2009-027
Uvalde National Bank Uvalde, Texas formal agreement Feb. 4 2009-028
Stephen Baltz, First United Bank, N.A. Englewood, Colo. personal cease-and-desist Feb. 12 2009-017
Timothy Troy Elison, U.S. Bank N.A. Cincinnati personal cease-and-desist Feb. 9 2009-029
K. Patrick Kruchten, First Integrity Bank, N.A. Staples, Fla. removal / prohibition March 2 2009-030
Paula R. Vinson, Washington State Bank, N.A. Federal Way, Wash. removal / prohibition Feb. 9 2009-030

C&D, Metropolitan Bank and Trust Company New York terminations of existing enforcement action Dec. 17, 2008 2008-176
C&D, The First National Bank of Lindsay Lindsay, Okla. terminations of existing enforcement action Feb. 19 2009-032
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