Bank Enforcement Cease and Desist Actions Quickly Rising

The financial crisis is causing a dramatic rise in the number of cease and desist orders by bank regulators and should be a warning sign for bank managers and directors, according to analysis by the Regulatory Fundamentals Group (RFG). "Regulators are concentrating on the failure to meet basic standards for safety and soundness, such as capital adequacy and liquidity," Deborah Prutzman, CEO of RFG, stated. "We encourage senior management and directors to be especially vigilant about their governance program until the economy turns around." The report shows that federal banking agencies have issued 302 Cease and Desist Orders as of September 30, 2009, compared to 168 in all of 2008. In the third quarter alone, 159 Cease and Desist orders were issued. RFG analyzed the 159 Cease and Desist orders and found the majority of the orders (130) indicate banks were operating with an inadequate level of capital protection for the volume, type, and quality of the assets held. One hundred of the banks were ordered to reduce their level of criticized assets; 93 banks were ordered to cease operating with an inadequate methodology for determining the appropriate allowance for loan and lease losses; 83 orders required banks to develop a three-year business plan and goals based on sound banking practices; 75 banks with brokered accounts were required to adopt a written plan to eliminate reliance on brokered funds and/or stop accepting deposits. Adequacy of management was also a key issue for bank regulators. Of the 159 orders reviewed by RFG, 99 stressed the importance of adequate management and 51 focused on adequate board supervision. Interestingly, the number of orders directed at individuals, primarily civil money penalties and removal and prohibition orders, did not increase significantly during this time period. This indicates that the federal banking regulators are devoting resources to deal with the consequences of the recent financial crisis at the present time, the release said. The orders were issued by the Federal Deposit Insurance Corporation (FDIC); Office of the Controller of the Currency (OCC), Office of Thrift Supervision (OTS) and the Board of Governors of the Federal Reserve System (FED). You can read the entire report at www.RegFG.com.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio