SEMINAR FOR SENIOR BANK SUPERVISORS FROM EMERGING ECONOMIES: DEALING WITH WEAK BANKS

Transcription

1 SEMINAR FOR SENIOR BANK SUPERVISORS FROM EMERGING ECONOMIES: DEALING WITH WEAK BANKS Moderator: Chris Siderys, Counsel, Enforcement Division Board of Governors of the Federal Reserve System

2 PLAN FOR TODAY Promote an open discussion and exchange of ideas and practices used by regulators around the world. Stimulate conversation through questions. Please feel free to speak up and share experiences. Please feel free to ask questions. 2

3 DO WE TAKE ENFORCEMENT ACTIONS? Enforcement actions are a means to modify the behaviors and actions at a regulated institution. Do you need to modify behavior or actions taken at institutions within your jurisdiction? Do you use means other than enforcement actions to achieve this goal? Differing cultural norms that do not require traditional enforcement tools Moral suasion 3

4 WHAT KIND OF ENFORCEMENT ACTIONS DO WE UTILIZE? Informal enforcement actions? Are these publically disclosed? Are these legally enforceable? When would these be used? Formal enforcement actions? Are these publically disclosed? Are these legally enforceable? When would these be used? Other types of actions? 4

5 WHAT PROCESS DO WE HAVE FOR ENTERING INTO ENFORCEMENT ACTIONS? Does there need to be specific violations of law? Does there need to be a written record of support? Is the approval process for the action difficult? How are enforcement actions delivered to the institution? Is there pushback? 5

6 WHAT TYPE OF PROVISIONS ARE INCLUDED IN ACTIONS? Are provisions specific in what is required? Do provisions set specific goals and timeframes for achievement? Alternatively, do provisions address policies and procedures at institutions? Whose activities are the enforcement actions looking to change? Management? Ownership? 6

7 ARE THERE OTHER ISSUES THAT WE ENCOUNTER? Working with other regulatory agencies Domestic International Cultural hindrances Legal limitations Political issues Usage of financial deterrents (fees and fines)? 7

8 TERMINATING AN ENFORCEMENT ACTION What requirements do you have for terminating an enforcement action? Is compliance enough? Is sustainability looked at? What is the process to lift the action? Is the termination of an action made public? 8

9 APPENDIX Information on Enforcement Actions by the Federal Reserve Board 9

10 U.S. BANKING SYSTEM - JURISDICTION Banks and foreign branches can be chartered by the states, or by the Office of the Comptroller of the Currency. Banks chartered by states have primary federal regulators, the Federal Reserve for member banks and the FDIC for non-member banks. All bank and thrift holding companies are regulated by the Federal Reserve. Both states and primary federal regulators can issue enforcement actions against regulated institutions. 10

11 WHEN ACTIONS ARE TAKEN Unsafe or unsound banking practices Deficiencies that negatively affect the financial condition of an institution Violations of law Consumer violations Depending on the size of the institution and the type of violation, jurisdiction may rest with the Consumer Financial Protection Bureau Violations of bank secrecy, money laundering, or sanctions laws Other violations of law Recent examples include foreign exchange rate fixing violations 11

12 TYPES OF ACTIONS TAKEN Informal actions Formal actions Actions required by law 12

13 INFORMAL ENFORCEMENT ACTIONS Actions that are not legally enforceable and are not publically disclosed Supervisory Letter Least severe form of enforcement action and are generally used to correct minor problems or to request periodic reports. Board Resolution Represent a number of commitments made by directors on behalf of the institution that are incorporated into the corporate minutes. These commitments often request the institution s board of directors to develop plans, procedures, or policies to facilitate corrective action at the institution. Memorandum of Understanding Structured documents that are signed by both the regulator and the institution. An MOU is generally used when multiple deficiencies are identified and the regulator believes they can be corrected by the present management. 13

14 FORMAL ENFORCEMENT ACTION POWERS AVAILED TO THE FEDERAL RESERVE BOARD, THE FDIC, AND THE OFFICE OF THE COMPTROLLER OF THE CURRENCY Issued against banks, bank holding companies, U.S. operations of foreign banks, institutionaffiliated parties, and other regulated entities. Enforceable pursuant to Section 8 of the Federal Deposit Insurance Act. Publically disclosed by the banking agencies. Written Agreements Issued by consent. Cease and Desist Orders Generally issued by consent. Can be issued by a regulatory agency without consent. Can be taken against institutions and institution affiliated parties Civil Money Penalties Assessed for violations of law or unsafe and unsound practices. Amounts determined by statute, based on the number of and severity of violations or practices. 14

15 ACTIONS ENTERED INTO BY LAW Statutorily required actions - 4(m) agreements against financial holding companies Occur when certain ratings are unsatisfactory Limit the ability of the company to expand certain business lines Prompt corrective action directives Issued when capital ratios at institutions fall to certain levels proscribed by legislation. Section 19 letters excluding individuals from the business of banking (see slide 17) Approval of certain golden parachute payments 15

16 TYPICAL PROVISIONS Improve board oversight of the institution. Improve credit underwriting, credit management and credit administration. Develop and implement capital plan. Restrict capital outflows. Implement policies and procedures to ensure compliance with laws and regulations. Implement ongoing reporting requirements related to the enforcement action. 16

17 ACTIONS AGAINST INDIVIDUALS Orders requiring individuals to cease and desist certain activities. Orders prohibiting individuals from participating in the business of banking going forward. Can be related to specific unsafe and unsound actions at covered institutions. Civil Money Penalties. Section 19 letters to individuals convicted of a criminal offense involving dishonesty, breach of trust, or money laundering and therefore cannot become an institution affiliated party without prior consent of the FDIC. 17

18 WORKING WITH OTHER REGULATORY AGENCIES Depending on the type of action and behavior, the Federal Reserve works with a number of other regulatory agencies including: State regulators The Office of the Comptroller of the Currency FDIC Justice Department State Prosecutors FBI Foreign Regulators Others 18

19 OTHER RESOURCES Federal Reserve Enforcement Information Federal Reserve Board Commercial Bank Examination Model - Federal Reserve Enforcement Action Overview - FDIC Enforcement Information - OCC Enforcement Information FFIEC Summary of Who Regulates Specific Types of Entities- 19

20 CONTACT INFORMATION Christopher Siderys (202)