SPECIAL SUPERVISION AND ENFORCEMENT ACTIVITIES

US Office of the Comptroller of the Currency: Quarterly Journal, Mar 2004

The Special Supervision Division of the Mid-size/Community Bank Supervision department supervises critical problem banks through rehabilitation or through other resolution processes such as orderly failure management or the sale, merger or liquidation of such institutions. The Special Supervision Division monitors the supervision of delegated problem banks, coordinates safety and soundness examinations, provides training, analyzes and disseminates information, and supports OCC supervisory objectives as an advisor and liaison to OCC management and field staff on emerging problem bank related issues.

This section includes information on problem national banks, national bank failures, and enforcement actions. Data on problem banks and bank failures is provided by OCC's Special Supervision department and the FDIC's Department of Resolutions in Washington. Information on enforcement actions is provided by the Enforcement and Compliance Division (E&C) of the law department. The latter is principally responsible for presenting and litigating administrative actions on the OCC's behalf against banks requiring special supervision.

Problem National Banks and National Bank Failures

Problem banks represented approximately 1 percent of the national bank population as of December 31, 2003. The volume of problem banks, those with a CAMELS rating of 4 or 5, has been stable for several years. The CAMELS rating is the composite bank rating based on examiner assessment of capital, asset quality, management, earnings, liquidity, and sensitivity to market risk. The total number of problem banks is 24 at December 31, 2003, and is the same as the number reported at December 31, 2002. This low volume of problem banks reflects the stable economy and generally favorable economic conditions enjoyed for the past several years. One national bank failure occurred during 2003 out of the three commercial bank failures.

Enforcement Actions

The OCC has a number of remedies with which to carry out its supervisory responsibilities. When it identifies safety and soundness or compliance problems, these remedies range from advice and moral suasion to informal and formal enforcement actions. These mechanisms are designed to achieve expeditious corrective and remedial action to return the bank to a safe and sound condition.

The OCC takes enforcement actions against national banks, parties affiliated with national banks, and servicing companies that provide data processing and other services to national banks. The OCC's informal enforcement actions against banks include commitment letters and memorandums of understanding (MOUs). Informal enforcement actions are meant to handle less serious supervisory problems identified by the OCC in its supervision of national banks. Failure to honor informal enforcement actions will provide strong evidence of the need for the OCC to take formal enforcement action. The charts below show total numbers of the various types of informal enforcement actions completed by the OCC against banks in the last several years. (Year-2000-related actions taken in 1999 are noted in the figure footnotes.)

The most common types of formal enforcement actions issued by the OCC against banks over the past several years have been formal agreements and cease-and-desist orders. Formal agreements are documents signed by a national bank's board of directors and the OCC in which specific corrective and remedial measures are enumerated as necessary to return the bank to a safe and sound condition. Cease-and-desist orders (C&Ds), sometimes issued as consent orders, are similar in content to formal agreements, but may be enforced either through assessment of civil money penalties (CMPs) or by an action for injunctive relief in federal district court. The OCC may also assess CMPs against banks, and in calendar year 2003, the OCC assessed CMPs against nine banks.

The most common enforcement actions against individuals and other institution-affiliated parties are CMPs, personal C&Ds, and removal and prohibition orders. CMPs are authorized for violations of laws, rules, regulations, formal written agreements, final orders, conditions imposed in writing, unsafe or unsound banking practices, and breaches of fiduciary duty. Personal C&Ds may be used to restrict activities, order payment of restitution, or require institution-affiliated parties to take other affirmative action to correct the results of past conduct. Removal and prohibition actions, which are used in the most serious cases, result in lifetime bans from the banking industry.

Recent Enforcement cases

Below are summaries of the significant cases completed between July 1 and December 31, 2003:

A. Consumer Protection

OCC brings first unfair practices case under the FTC Act; restitution ordered. In November 2003, the OCC issued a consent cease-and-desist order in connection with a Texas bank predecessor's abusive tax lien loans to subprime borrowers. The loans involved violations of the Truth in Lending Act, Home Ownership Equity Protection Act, and Real Estate Settlement and Procedures Act, and unfair practices under section 5 of the Federal Trade Commission Act. The unfair practices included fees that were charged for services that were never performed, duplicative fees, and, in some cases, fees far above the fees charged to other customers for the services provided. The OCC ordered the bank to make full restitution to tax lien customers for all fees and interest charged on the loans, and to review a mortgage loan portfolio considered at-risk for similar violations. The OCC ordered the bank to pay additional restitution to any customers in this mortgage loan portfolio who were victims of violations of law or unfair practices. The OCC also issued a consent cease-and-desist order to the partnership that originated and collected the bank's tax lien loans, requiring the partnership to seek the OCC's non-objection prior to entering into agreements with other national banks. Finally, in connection with the tax lien loans, the OCC issued a consent personal cease-and-desist order against a former officer of the predecessor bank restricting her future lending activity and assessing a $10,000 civil money penalty. In the Matter of Clear Lake National Bank, San Antonio, Texas, Enforcement Action No. 2003-135 (November 7, 2003); In the Matter ofSedona Pacific Housing Partnership, D/B/A Sedona Pacific Properties, San Antonio, Texas, Enforcement Action No. 2003-149 (November 19, 2003); In the Matter of Nancy Kinder, Enforcement Action No. 2003-153 (October 20, 2003).