Risk Management Manual of Examination Policies - FDIC

FORMAL ADMINISTRATIVE ACTIONS Section 15.1
written notification to the bank should indicate the capital
ratios that the bank will be required to attain and thereafter
maintain and the dollar amount of capital the bank will be
required to raise. The notice should also state the time
period within which the bank should achieve the prescribed
capital levels, a period which should generally not exceed
180 days following the issuance of the directive. After the
bank has received the written notification, it has 14 days in
which to mail a written response to the Regional Director
indicating why the proposed directive should be modified
or not issued. Within 30 days of receipt of this response
and after the Region's analysis of it, the Regional Director
should decide whether to proceed with the directive. If
such action is to be taken, the Regional Director or Deputy
Regional Director may issue the Directive.
If the bank does not respond to the written notification
from the Regional Director within the prescribed 14 day
period, it is deemed to have consented to the issuance of a
directive. However, sufficient time should be allowed for
the mailing of the notice to the bank and a response from
the bank before concluding that the bank will not file a
written response. The granting by Regional Directors of
requests for extensions of the 14-day period for filing a
response to a notice of intent is generally not contemplated.
Such requests should be approved only for good cause and
only when there are extenuating circumstances.
When circumstances warrant, the time period for achieving
the capital requirement in a directive may be formally
extended by the Regional Director or additional time to
comply with a directive can be informally provided by
postponing further enforcement action. The FDIC does
have authority to seek enforcement of a directive in district
court when appropriate.
PROMPT CORRECTIVE ACTION
DIRECTIVE
Prompt corrective action is a framework of supervisory
actions for insured depository institutions which are not
adequately capitalized. These actions become increasing
severe as an institution falls within lower capital
categories. Some supervisory actions associated with
prompt corrective action are mandatory; that is, the actions
immediately apply to the institution as it classified in a
particular category. Other supervisory actions associated
with prompt corrective action are discretionary; in other
words, they may be imposed by the FDIC. If the FDIC
pursues discretionary supervisory action, administrative
procedures defined in Section 308.2 of the FDIC Rules and
Regulations must be followed.
Part 325 of the FDIC regulations automatically makes
institutions subject to certain of the restrictions of the
prompt corrective action provisions immediately upon
receiving notice, or being deemed to have notice, that the
institution falls into a particular PCA capital category. In
addition, the FDIC may take further discretionary
supervisory actions under PCA where such actions appear
necessary to carry out the purpose of PCA.
Section 38(f)(2) of the FDI Act requires the appropriate
Federal banking agency to take one or more of the actions
listed in that section against institutions which are
significantly undercapitalized or undercapitalized
institutions which have failed to file or implement a capital
restoration plan. The mandatory restrictions may be
embodied in an action taken pursuant to section 8 of the
FDI Act or in a PCA Directive. Regardless of the
enforcement tool used to achieve the desired result, every
Critically Undercapitalized institution, Significantly
Undercapitalized institution, or Undercapitalized
institution which has failed to file or implement an
acceptable capital restoration plan, for which the FDIC is
the appropriate Federal banking agency, must have a
formal action in place or in process which covers the
mandatory restrictions. Such formal action can only be
avoided if the FDIC Board is able to make a determination
that the action would not further the purpose of section 38.
ORDERS TO CORRECT SAFETY AND
SOUNDNESS DEFICIENCIES
Section 39 of the FDI Act establishes a corrective program
for banks that do not meet the safety and soundness
standards set forth in Appendix A to Part 364 of the FDIC
Rules and Regulations. Specific rules and procedures for
initiating corrective action in banks that do not conform to
the standards are delineated in Part 308, Subpart R of the
rules and Regulations.
The FDIC may request a bank to submit a compliance plan
describing the steps the bank will take to correct identified
deficiencies. Banks that fail to submit a requested plan, or
fail to adhere to the submitted plan, will be subject to an
Order requiring correction of the deficiencies noted. In
addition, the FDIC has the discretion to employ other
corrective measures which are similar to those imposed by
PCA provisions. These include growth restrictions, capital
calls, limits on the rate of interest paid on deposits, or any
other measure deemed necessary by the FDIC to effect
corrective action.
The power to initiate supervisory action under Section 39
is discretionary; however, the discretion becomes limited
Formal Administrative Actions (4-98) 15.1-12 DSC Risk Management Manual of Examination Policies
Federal Deposit Insurance Corporation