In a recent article, Tom Vartanian and Larry Nesbitt reported on a significant increase in the number of federal banking agency enforcement actions as well as bank and thrift failures during the first six months of 2009. Vartanian and Nesbitt, Actions Lag Financial Crisis But Reflect Trouble Banks Continue to Confront, 93 Banking Rep. (BNA) 817 (Oct. 27, 2009).
The authors found that in the first six months of 2009, the
federal banking agencies closed more than 500 enforcement actions,
more than twice as many as during the first six months of any of
the preceding five years. While the majority of these enforcement
actions focused on basic safety and soundness issues with capital
issues being paramount, the federal banking agencies continued to
emphasize the need for depository institutions to comply with
consumer protection laws and regulations, to supervise third-party
service providers, and to comply with bank secrecy and anti-money
laundering laws and regulations.
The authors also reported on a significant increase in the number
of bank and thrift failures during the first six months of 2009. A
total of 45 banks or thrifts failed during the first six months of
2009, nearly twice as many as during all of 2008. The authors found
that as the number of bank and thrift failures increased, the
Federal Deposit Insurance Corporation has increased its use of
loss-sharing agreements to encourage acquisitions of failed
institutions.
The number of enforcement actions is likely to increase as the
federal banking agencies give their regulated institutions the last
best chance to implement life sustaining actions. Management of
banks and thrifts would be prudent to take proactive steps now as
opposed to under a banking agency enforcement action.
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