Audit Report
OIG-16-052
SAFETY AND SOUNDNESS: Analysis of Bank Failures Reviewed
by the Department of the Treasury Office of Inspector General
August 15, 2016
Office of
Inspector General
Department of the Treasury
Contents
Analysis of Bank Failures Reviewed by Treasury OIG Page i
(OIG-16-052)
Audit Report
Results in Brief ............................................................................................ 1
Background ................................................................................................ 4
Audit Results .............................................................................................. 7
Common Causes of Bank Failures ............................................................. 7
Common Supervisory Themes .................................................................. 12
OCC Strengthened Its Supervisory Process ................................................ 16
Other Initiatives ...................................................................................... 19
Recommendations ....................................................................................... 22
Appendices
Appendix 1: Objectives, Scope, and Methodology ......................................... 24
Appendix 2: Failed Banks’ Background Information ....................................... 26
Appendix 3: Bank Failures by Region ........................................................... 31
Appendix 4: Common Causes of Bank Failures ............................................ 32
Appendix 5: Common Supervisory Themes of Bank Failures ........................... 37
Appendix 6: Prior Office of Inspector General Recommendations to OCC ......... 40
Appendix 7: OCC Management Comments................................................... 52
Appendix 8: Major Contributors to This Report ............................................. 55
Appendix 9: Report Distribution .................................................................. 56
Abbreviations
CDO collateralized debt obligation
CMO collateralized mortgage obligation
CRE commercial real estate
DIF Deposit Insurance Fund
Dodd-Frank Dodd-Frank Wall Street Reform and Consumer Protection Act
EIC Examiner-in-Charge
Fannie Mae Federal National Mortgage Association
FBR failed bank review
FDIA Federal Deposit Insurance Act
Contents
Analysis of Bank Failures Reviewed by Treasury OIG Page ii
(OIG-16-052)
FDICIA Federal Deposit Insurance Corporation Improvement Act of
1991
FDIC Federal Deposit Insurance Corporation
FFIEC Federal Financial Institutions Examination Council
Freddie Mac Federal Home Loan Mortgage Corporation
FSOC Financial Stability Oversight Council
GSE Government-Sponsored Enterprise
MLR material loss review
MRA matter requiring attention
OCC Office of the Comptroller of the Currency
OIG Office of Inspector General
OTS Office of Thrift Supervision
PCA prompt corrective action
Platinum Platinum Community Bank
ROE report of examination
SAR Suspicious Activity Report
TeamBank TeamBank, National Association
Treasury Department of the Treasury
OIG
Audit
Report
The Department of the Treasury
Office of Inspector General
Analysis of Bank Failures Reviewed by Treasury OIG Page 1
(OIG-16-052)
August 15, 2016
Thomas J. Curry
Comptroller of the Currency
This report presents the results of our analysis of the material loss
review (MLR), failed bank review (FBR), and in-depth review
reports we issued during 2008–2012, as well as Office of the
Comptroller of the Currency’s (OCC) actions to strengthen its bank
supervision process.
Our audit objectives were to (1) identify common themes related to
the supervision of banks and thrifts
1
and the causes of their failures
and (2) assess OCC’s actions to strengthen its supervisory process
in response to our audit recommendations and through other
initiatives. To accomplish our objectives, we reviewed the
120 MLR, FBR, and in-depth review reports we issued to OCC and
the legacy Office of Thrift Supervision (OTS) from January 1,
2008, through December 31, 2012, on banks that failed from
September 2007 through July 2012.
2
We also reviewed relevant
OCC documentation and guidance, interviewed OCC officials, and
conducted other applicable fieldwork from December 2011 through
March 2015. Appendix 1 contains a detailed description of our
objectives, scope, and methodology.
Results in Brief
The bank failures stemmed mainly from the banks’ ineffective
management, inadequate board oversight, aggressive growth
strategies, inability to adjust quickly or effectively to changing
economic conditions and the declining real estate market, and
failure to maintain sufficient capital.
1
Both national banks and thrifts are collectively referred to as banks throughout this report.
2
Legacy OTS regulated all thrifts until July 21, 2011, when OCC assumed regulatory responsibility for
federal savings associations pursuant to P.L. 111-203. Therefore, we did not assess the corrective
actions taken by legacy OTS.
Analysis of Bank Failures Reviewed by Treasury OIG Page 2
(OIG-16-052)
We determined the most common themes associated with the
failed banks were: (1) asset concentrations, (2) inadequate credit
administration and risk management, and (3) reliance on wholesale
funding. We also identified several other attributes that, though not
as common, contributed to bank failures. In addition, we identified
certain matters in 29 failed banks relating to potential fraud that
we referred or provided information to the Department of the
Treasury’s (Treasury) Office of Inspector General’s (OIG) Office of
Investigation. Further review of these matters by Treasury OIG’s
Office of Investigation led to the prosecution of several individuals.
Appendix 4 contains a listing of the common themes of the
failures, by bank, as reported in our MLR, FBR, and in-depth review
reports.
We also identified common supervisory themes of the banks prior
to their failures. We determined that OCC’s supervision was
appropriate in some of the banks and OCC’s and the legacy OTS’s
uses of authority under prompt corrective action (PCA) were
generally in accordance with PCA requirements. However, for
many banks, OCC and the legacy OTS: (1) did not take timely
and/or strong enough supervisory actions and/or (2) did not timely
identify or failed to identify key issues. In some instances, we
noted that OCC and the legacy OTS lacked appropriate guidance or
did not follow their guidance. Appendix 5 contains a listing of the
common supervisory themes and other supervisory issues, by
bank, reported in our MLR and in-depth reports.
OCC generally concurred with the recommendations we made in
our MLR and in-depth review reports. And, OCC implemented
policies and procedures, updated examination guidance, and took
other corrective actions consistent with the intent of our
recommendations. Appendix 6 contains further details of OCC’s
corrective actions, planned or taken, to address our
recommendations.
Finally, OCC has undertaken independent initiatives to strengthen
its supervisory process, including implementing processes to
identify emerging risks to bank safety and soundness. Additionally,
the Comptroller of the Currency requested that a small group of
current and former senior supervisory personnel from other
countries independently review OCC’s supervision. In a December
Analysis of Bank Failures Reviewed by Treasury OIG Page 3
(OIG-16-052)
2013 report to OCC, the group commended OCC’s improved ability
to focus on specific risk areas and its creation of an independent
quality assurance process to review its own supervision.
OCC is addressing several key recommendations made by the
group, covering six broad areas:
mission, vision, and strategic goals;
risk identification;
ratings systems;
staffing;
scope and consistency of supervisory strategies; and
enterprise governance.
Banking crises such as the one that occurred from 2008-2012
have happened before; most recent prior to the Great Recession
was the savings and loans crisis of the late 1980s/early 1990s
when thousands of institutions failed. A major challenge facing
OCC going forward is to institutionalize and maintain the “lessons-
learned” and initiatives from this crisis to hopefully minimize the
impact of future stresses to the economy on banking. Accordingly,
we recommend that the Comptroller of the Currency ensures OCC
identifies common trends and emerging issues to take corrective
action in a timely manner by continuing to: (1) address
recommendations from our MLRs and in-depth reviews, as well as
the international review; (2) participate in various committees and
groups to identify emerging risks and communicate them to
examiners and banks; and (3) use its newly implemented lessons-
learned review program and other analyses, as appropriate.
In a written response, OCC management showed concurrence with
our audit results. To address previous MLR and in-depth review
recommendations, management stated that OCC will continue its
practice of identifying and taking appropriate actions in a timely
manner in response to recommendations from MLRs and in-depth
reviews as well as continue with its initiatives that addressed and
implemented the December 2013 International Peer Review
recommendations. With respect to participating on committees and
the like, management responded that OCC is a member of the
Financial Stability Oversight Council (FSOC) and the Federal
Financial Institutions Examination Council (FFIEC), and OCC staff
Analysis of Bank Failures Reviewed by Treasury OIG Page 4
(OIG-16-052)
participate on FSOC and FFEIC support committees. In addition,
OCC participates on international committees, supervisory colleges,
and crisis management groups; interagency and cross-
governmental working groups; and ad hoc groups where risks are
raised and discussed. As for OCC’s new lessons-learned program,
management stated that OCC will continue to use the program
going forward. Overall, we found management’s response to meet
the intent of our recommendations. We have summarized and
evaluated management’s response in the recommendation section
of this report and included the response in its entirety as appendix
7.
Background
Section 38(k) of the Federal Deposit Insurance Act (FDIA) requires
that the inspectors general for federal banking agencies review
bank failures resulting in Deposit Insurance Fund (DIF) losses. OCC
is the Federal banking agency responsible for supervising national
banks and federal savings associations. On July 21, 2011, OCC
assumed regulatory responsibility for the federal savings
associations from the legacy OTS pursuant to P.L. 111-203.
Prior to enactment of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank), on July 21, 2010,
section 38(k) of the FDIA defined a DIF loss as material if it
exceeded the greater of $25 million or 2 percent of the failed
institution’s total assets. Among other things, Dodd-Frank amended
how the FDIA defined the materiality of a DIF loss. A DIF loss is
material if it exceeds $200 million for a failure occurring in calendar
years 2010 and 2011, $150 million in 2012 and 2013, and
$50 million in 2014, with a provision that the threshold can be
raised temporarily to $75 million thereafter if certain conditions are
met.
Such material losses trigger formal review by the cognizant OIG,
and for each MLR, section 38(k) of FDIA requires that the OIG
(1) determine the causes of the institution’s failure; (2) assess the
appropriate agency’s supervision of the institution, including
implementation of the PCA provision of section 38(k); and (3) make
recommendations for preventing such a loss in the future.
Analysis of Bank Failures Reviewed by Treasury OIG Page 5
(OIG-16-052)
Dodd-Frank also created new reporting requirements for failures
that result in losses below the appropriate materiality threshold. We
refer to these reports as FBRs. In these situations, we must
determine the grounds identified by OCC for appointing the Federal
Deposit Insurance Corporation (FDIC) as receiver and determine
whether any unusual circumstances warrant a more in-depth
review of the loss.
3
In our 2004 compendium report, Summary of Treasury OIG’s
Material Loss Reviews of Failed National Banks and Thrift
Institutions Between 1993 and 2002
4
, our office performed 7
MLRs between 1993 and 2002 pursuant the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA). Of the 7
MLRs performed, 5 were required under FDICIA and two were
considered pilots since the losses occurred before such reviews
were required by law. Also of note, between 2003 and 2007, there
were no failures that required an MLR.
From September 2007 through July 2012, 126 of the
approximately 2,200 banks (or approximately 6 percent) supervised
by OCC or the legacy OTS failed.
5
We issued 120 reports on
119 of those failed banks during the period January 1, 2008
through December 31, 2012.
6
The reports included results from:
54 MLRs (26 supervised by OCC and 28 by legacy OTS),
63 FBRs (45 supervised by OCC and 18 by legacy OTS), and
3 in-depth reviews (2 supervised by OCC and 1 by legacy OTS).
The banks we reviewed had approximately $185.4 billion in
aggregate total assets, and their failures resulted in an aggregate
estimated DIF loss of $35.3 billion, or 19 percent, of the aggregate
total assets of the failed banks.
3
In the event that a loss warrants an in-depth review, we must report in our FBR the reasons for such
review and state when it will be submitted to OCC and the Congress. Our objectives for in-depth
reviews, similar to MLRs, are to (1) assess OCC’s supervision of the institution, including
implementation of the PCA provision of section 38(k), and (2) make recommendations for preventing
such a loss in the future.
4
Treasury OIG, Safety, Soundness, and Accessibility of Financial Services: Summary of Treasury
OIG’s Material Loss Reviews of Failed National Banks and Thrift Institutions Between 1993 and
2002, OIG-CA-04-004 (May 28, 2004).
5
Among the 126 failed banks, 7 did not meet the $25 million materiality threshold requiring an MLR,
and they failed prior to the Dodd-Frank Act requirement for an FBR.
6
We issued an FBR report and an in-depth review report on First National Bank of Davis.
Analysis of Bank Failures Reviewed by Treasury OIG Page 6
(OIG-16-052)
Of the failed banks we reviewed, 65 percent were located in the
southern and the western regions of the United States. They
constituted 83 percent, or $29.4 billion, of the aggregate
estimated losses in our review. As Figure 1 shows, banks in eight
states accounted for 69 percent of bank failures and 78 percent of
estimated DIF losses, or approximately $27.6 billion. Florida and
California were the top two states in both number of failures and
DIF losses, accounting for 37 failures and $23.1 billion in
estimated losses among the banks in our review. Appendices 2 and
3 provide additional details of the failed banks we reviewed,
including their assets and estimated losses.
Figure 1: Bank Failures and Estimated Losses to the DIF, by State, 9/2007–7/2012
Source: Analysis of Treasury OIG reports issued from January 1, 2008, through December 31, 2012.
21
16
12
10
8
5
5
5
$6,862.9
$16,267.6
$1,598.9
$1,700.3
$523.8
$284.3
$169.4
$167.3
$0
$5,000
$10,000
$15,000
$20,000
0
5
10
15
20
25
Florida California Georgia Illinois South
Carolina
Maryland Minnesota Arizona
Estimated
Losses to the
DIF
($ millions)
Bank Failures
Analysis of Bank Failures Reviewed by Treasury OIG Page 7
(OIG-16-052)
Audit Results
Common Causes of Bank Failures
We found that many of the recent bank failures displayed some of
the same risks we identified in our 2004 compendium report.
These involved board of director and/or management weaknesses
and aggressive growth strategies that resulted in excessive
concentrations of high-risk assets and overreliance on continued
growth in the economy.
Most bank failures were the result of ineffective management,
inadequate board oversight, aggressive growth strategies, the
inability to adjust quickly or effectively to changing economic
conditions and the declining real estate market, and the failure to
maintain sufficient capital:
Ineffective Management and Inadequate Board Oversight
The boards of directors and management for the banks did not
appropriately address problem areas or adequately identify,
measure, monitor, or control significant risks that threatened
viability. For example, the banks’ boards and management
(1) engaged in business strategies that encouraged high growth
without adequately monitoring higher-risk loans, (2) did not
establish or enforce concentration limits on their portfolios, and
(3) did not maintain adequate capital to compensate for their
high-risk lending. In some instances, the boards and
management were non-responsive to regulator efforts to correct
unsafe and unsound practices. As a result, the banks’ asset
quality deteriorated, classified asset levels and losses increased,
and capital and earnings declined, ultimately leading to their
failures.
Aggressive Growth Strategy
Prior to 2007, the banking industry experienced success due to
strong financial performances, particularly in real estate. This led
many banks to pursue aggressive growth strategies, especially in
real estate, which was profitable and in demand. These strategies
led to lax credit administration and risk management, asset
Analysis of Bank Failures Reviewed by Treasury OIG Page 8
(OIG-16-052)
concentrations, and overreliance on wholesale funding, all of which
are discussed below.
Economic Downturn
By 2007, the U.S. economy as a whole had begun to decline.
The economic downturn hit real estate markets in southern and
western states hardest. Those regions led in both number of
bank failures and DIF loss in our review. Appendix 3 provides
further details of the failures by region.
As the economy declined, property prices fell, and collateral
values dropped. The drop in collateral values left many
borrowers unable to refinance, leading to defaults on many
loans, substantial write-downs on others, and, eventually,
foreclosures. This left the banks with many rapidly depreciating
real estate assets that they could not sell. Furthermore,
management relied on the previously robust real estate market
to generate high-risk, high-yield loans without implementing
adequate safeguards. The downturn in the economy magnified
other deficiencies and helped to accelerate many bank failures.
Insufficient Capital
Federal banking law requires banking organizations to achieve
and maintain adequate capital to serve as a buffer against
unexpected losses. Sufficiency of capital is relative to the risk
level of a bank’s loan portfolio. Whether failed banks maintained
capital just above the well-capitalized standard (affording little
cushion for unanticipated, adverse events) or maintained higher
capital levels, they could not sustain the large loan losses and
economic downturn associated with the housing collapse. Over
time, the losses eroded capital until the banks eventually
became critically undercapitalized and then ultimately failed.
We determined the most common themes of bank failures to be:
(1) asset concentrations, (2) inadequate credit administration and
risk management, and (3) reliance on wholesale funding. We also
identified several less common causes contributing to bank failure.
Appendix 4 contains a listing of the common causes of the failures,
by bank, as reported in our MLR, FBR, and in-depth review reports.
Analysis of Bank Failures Reviewed by Treasury OIG Page 9
(OIG-16-052)
Asset Concentration
OCC broadly defines a concentration as a group of classes of
credit exposures that share common risk characteristics or
sensitivities to economic, financial, or business developments
that, in aggregate, exceed 25 percent of the bank’s capital
structure.
7
If a bank’s assets are highly concentrated in a
particular category, negative events affecting that category can
be highly detrimental to the bank as a whole.
Of the 119 banks we reviewed:
89 (or 75 percent) had concentrations in commercial real
estate (CRE) loans
8
20 (or 17 percent) had concentrations of non-traditional
mortgages
9
18 (or 15 percent) had concentrations of other assets, such
as auto loans with subprime characteristics, non-agency
collateralized mortgage obligations (CMOs),
10
collateralized
7
The legacy OTS defined concentrations as a group of similar types of assets or liabilities that, when
aggregated, exceed 25 percent of a thrift’s core capital plus allowance for loan and lease losses.
8
CRE loans are loans for real property for which the primary or significant source of repayment is from
rental income associated with the property or the proceeds of the sale, refinancing, or permanent
financing of the property. CRE loans include construction and real estate development loans, land
development loans, and commercial property loans (such as for office buildings and shopping
centers).
9
Non-traditional mortgages describe mortgages that do not take the traditional form. Traditional
mortgage loans, both fixed and adjustable rate, typically require that the borrower’s monthly
payment cover both interest and a reduction in principal, allowing for a reasonably predictable
amortization over the life of the mortgage. Nontraditional mortgages include, but are not limited to,
interest-only mortgages, payment-option adjustable-rate mortgages, and subprime mortgages.
10
A non-agency CMO is a type of financial debt vehicle that is not issued by a Government Sponsored
Enterprise (GSE). A CMO is a special-purpose entity that is wholly separate from the institution that
creates it. The entity is the legal owner of a set of mortgages, called a pool. Investors in a CMO buy
bonds issued by the CMO, and they receive payments according to a defined set of rules.
Analysis of Bank Failures Reviewed by Treasury OIG Page 10
(OIG-16-052)
debt obligations (CDOs),
11
home equity lines of credit,
12
and
nonhomogeneous loans.
13
Inadequate Credit Administration and Risk Management
Credit administration and risk management include underwriting,
loan review and appraisal processes, risk weighting, analyses of
allowances for loan and lease losses, and multivariable stress
testing of loan portfolios.
14
Eighty-six (86), or 72 percent, of the 119 failed banks had
inadequate credit administration and risk management practices.
We reported instances in which bank management provided
flexibility in underwriting standards to compete with other
lenders. Some of the banks failed to obtain appraisals or had
improper appraisal practices, such as untimely, incomplete, or
inadequate support for appraisal values. In some cases, this
leniency resulted in approved loans for borrowers with financial
weaknesses, including poor credit history, deficient collateral,
low credit scores, numerous late payments, and previous
foreclosures. In some instances, banks identified some of these
weaknesses prior to approving the loans. Appraisal deficiencies
often resulted in properties being overvalued, violating standard
appraisal requirements.
Additionally, OCC or legacy OTS examiners documented various
weaknesses in banks’ credit risk management practices,
11
A CDO is a structured investment security that consists of a securitized pool of debt instruments,
such as trust-preferred securities. The cash flows of the underlying collateral are divided into
separate portions, or tranches, each having its own yield, term, and other characteristics designed to
appeal to different investors. Each CDO tranche represents a different type of credit risk. To
compensate for their higher risk, tranches with higher-risk debt (junior or mezzanine tranches) offer
higher interest rates to investors than more senior tranches. Typically, senior notes are rated at a
higher investment grade than mezzanine notes.
12
A home equity line of credit is a form of revolving credit backed by the home as collateral.
13
Nonhomogeneous assets have underwriting criteria that are less likely to be uniform, and
classification decisions are based on broader considerations than just the loan’s delinquency status.
Nonhomogeneous loans may include, for example, construction, land, and land development loans,
commercial mortgage loans, multifamily mortgage loans, and commercial loans.
14
Multivariable testing is designed to determine whether an insured depository institution has enough
capital to weather the impact of adverse developments.
Analysis of Bank Failures Reviewed by Treasury OIG Page 11
(OIG-16-052)
including inability to properly risk weight loans, incomplete
analyses of allowance for loan and lease losses, inadequate
multivariable stress testing of loan portfolios, and excessive
loan exceptions. Furthermore, banks did not diversify lending
into other geographic areas during the peak of the real estate
market to alleviate the concentration and economic risks within
local markets. All of these factors left banks with poor-quality,
delinquent loans which led to diminished assets, eventual
losses, and, ultimately, bank failures.
Reliance on Wholesale Funding
Twenty-four (24), or 20 percent, of the 119 banks failed, in
part, because of an overreliance on wholesale funding, often
used to finance growth. Brokered deposits, the most common
type of wholesale funding that banks in our review used, are
highly interest-rate-sensitive; and therefore, an unstable deposit
source. FDICIA requires that acceptance of brokered deposits
can only be made by well-capitalized institutions that exceed
the minimum PCA requirements. As banks fell below the well-
capitalized threshold, additional brokered deposits were no
longer available as a funding source. Once cut off, banks were
unable to identify alternative, sufficient funding solutions.
Other Causes
Several other causes, though not as common, contributed to
bank failures. For example, one of the 119 banks failed because
of significant losses from preferred stock holdings in Federal
National Mortgage Association (Fannie Mae) and Federal Home
Loan Mortgage Corporation (Freddie Mac). Such losses were
also a contributing factor to the failure of another five banks
affiliated with one holding company. After the Federal Housing
Finance Agency placed Fannie Mae and Freddie Mac into
conservatorship on September 7, 2008, the market value of the
GSE preferred stock owned by the banks declined significantly,
and banks were required to write down their GSE investments.
Other causes included failed mergers, sales, or acquisitions;
high management/staff turnover; improper accounting
transactions; inadequate internal controls; and a lack of core
Analysis of Bank Failures Reviewed by Treasury OIG Page 12
(OIG-16-052)
deposits or funding. In addition, we identified certain matters in
29 failed banks relating to potential fraud that we referred or
provided information to Treasury’s OIG Office of Investigation.
Further review of these matters by Treasury OIG’s Office of
Investigation led to the prosecution of several individuals.
Common Supervisory Themes
We assessed supervision of OCC and/or the legacy OTS in
54 MLRs and 3 in-depth reviews,
15
identifying common supervisory
themes of the banks prior to their failures. We determined that
OCC supervision were appropriate in some of the banks, and uses
of OCC and legacy OTS authority under PCA were generally in
accordance with PCA requirements. However, for many banks,
OCC or legacy OTS: (1) did not take timely and/or strong enough
supervisory actions, and/or (2) did not identify or timely identify
key issues.
We also noted that several of the actions taken or not taken were
the result of OCC and the legacy OTS not following their guidance
and/or the lack of appropriate guidance. Furthermore, we noted
several other supervisory issues that were not as common among
the banks. Appendix 5 contains a listing of the common
supervisory themes reported in our MLR and in-depth reports.
Appropriate Supervision
We considered OCC’s overall supervision appropriate in in 7 banks
(6 of the 54 MLRs and 1 of the 3 in-depth reviews).
16
For example,
we concluded that OCC’s supervision of the First National Bank of
Anthony was appropriate even though it did not prevent a material
loss to the DIF. OCC identified credit administration issues in a
15
The other 63 reports are FBRs. The objectives of FBRs do not require a supervision assessment of
those failed banks whose assets fall below the MLR materiality threshold.
16
We considered the overall supervision of the seven OCC-regulated banks to be appropriate because
reports on them did not include any supervisory concerns. We did not identify any banks in which
the legacy OTS’ overall supervision was considered fully adequate, either in terms of timely
identifying problems at the banks, and/or taking appropriate supervisory action.
Analysis of Bank Failures Reviewed by Treasury OIG Page 13
(OIG-16-052)
timely manner, issued enforcement actions, and used its authority
under PCA.
17
PCA Was Generally Used Appropriately
The purpose of PCA is to resolve the problems of insured
depository institutions at the least possible long-term loss to the
DIF. According to PCA requirements, Federal banking agencies are
to take certain actions when an institution’s capital drops below
the adequately capitalized level. Under PCA, regulators have
flexibility to take other supervisory actions against institutions
based on criteria other than capital levels to help reduce deposit
insurance losses caused by unsafe and unsound practices.
We found that OCC and the legacy OTS generally followed existing
examination guidelines and implemented PCAs as required. OCC
and legacy OTS routinely monitored capital levels, imposed
increasingly restrictive mandatory provisions as capital levels
decreased, and acted quickly to close critically undercapitalized
banks.
Two instances out of the 54 MLRs and 3 in-depth reviews showed
that PCAs were not used in accordance with PCA requirements:
IndyMac Bank FSB and Platinum Community Bank (Platinum), both
regulated by the legacy OTS:
Legacy OTS took PCA against IndyMac Bank on July 1, 2008,
following reclassification of IndyMac from well-capitalized to
adequately capitalized on June 30, 2008. Although this
conformed to PCA requirements, our office found that legacy
OTS allowed IndyMac to record an $18 million capital infusion
received from the holding company in May 2008 as though it
had been available on March 31, 2008. We determined that
legacy OTS should have taken PCA in May 2008 based on
information in IndyMac’s 10-Q filing for the quarter ending
March 31, 2008.
Legacy OTS did not implement PCA during its supervision of
Platinum given a rapid chain of events relating to the unsafe and
17
Treasury OIG, Safety and Soundness: Material Loss Review of First National Bank of Anthony, OIG-
11-105 (September 20, 2011)
Analysis of Bank Failures Reviewed by Treasury OIG Page 14
(OIG-16-052)
unsound use of escrow deposits to purchase certain mortgage
loans, which led to the bank’s failure. As a result of effects
relating to the loan purchases, OTS notified Platinum in a letter
dated August 3, 2009, that the bank was in troubled condition.
The letter imposed restrictions on growth, severance pay, and
dividends. On August 24, 2009, legacy OTS issued a cease and
desist order to Platinum, requiring the bank to maintain capital
ratios higher than PCA well-capitalized ratios. Because of this
requirement, the cease and desist order stated that Platinum
could not be deemed well-capitalized for PCA purposes and
included other provisions normally associated with PCA
requirements for undercapitalized banks.
Untimely Actions Taken and/or Stronger Actions Warranted
Federal banking agencies can take a number of corrective actions
to address safety and soundness practices at banks. In 41 of the
54 MLRs and 1 of the 3 in-depth reviews (or 74 percent), we
determined that OCC or the legacy OTS should have taken stronger
actions and/or taken action earlier. Out of the 42 banks, 14 were
regulated by OCC and 28 were regulated by the legacy OTS.
We found instances where Federal banking agencies could have
taken more forceful actions to compel banks to restrain and
reduce higher-risk lending and secure higher capital levels.
In some cases, Federal banking agencies took no supervisory
action or should have taken stronger action to address unsafe
and unsound concentrations in CRE, construction and land
loans, and non-homogeneous loans identified in earlier exams.
Federal banking agencies sometimes failed to require banks to
increase capital levels to compensate for increasing risk in their
loan portfolio in a timely manner.
Furthermore, we reported instances where Federal banking
agencies did not take formal or informal enforcement actions in a
timely manner, nor were they timely using matters requiring
attention (MRAs)
18
and corrective actions to compel boards of
directors and management to mitigate risks. In many instances,
examiners eventually concluded that regulatory action was
18
The legacy OTS referred to MRAs as “matters requiring board attention.”
Analysis of Bank Failures Reviewed by Treasury OIG Page 15
(OIG-16-052)
necessary, but that conclusion came too late to reverse the bank’s
worsening condition.
Guidance Not Followed or Lack of Appropriate Guidance
In 38 of the MLRs and in-depth reviews (or 67 percent), Federal
banking agencies did not follow or lacked appropriate guidance.
OCC regulated 16 of the banks, and the legacy OTS regulated 22.
In certain cases, the Federal banking agencies took informal action
rather than formal action, or assigned inaccurate CAMELS ratings.
19
Federal banking agencies also failed to follow guidance on
completion of working papers and examination documentation, had
guidance that was too general, or lacked guidance requiring
Examiner-in-Charge (EIC) rotation and a formal review of the
supervision process.
In another example, OCC did not follow its guidance during the
process of converting Silverton Bank to a national bank. OCC
approved the conversion despite noting significant weaknesses in
the pre-conversion examination, and it did not assign an EIC timely.
Additionally, OCC did not have guidance for performing second-
level reviews during the conversion approval process.
20
These
issues were crucial to the bank’s supervision during the
deterioration of the housing market.
Key Issues Not Identified or Not Identified Timely
In 13 of the MLR or in-depth reviews (or 23 percent), OCC or the
legacy OTS did not identify key issues, or did not identify the
issues until subsequent examinations. OCC regulated 2 of the
banks, and legacy OTS regulated 11. In our MLR report on
TeamBank, National Association (TeamBank), for example, OCC did
not timely identify that the bank was being controlled by a Chief
Executive Officer/President with too many other responsibilities to
19
Federal banking agencies use the Uniform Financial Institutions Rating System, or “CAMELS,” to
assign composite and component ratings to banks. A bank’s composite CAMELS rating integrates
ratings from six components: capital adequacy, asset quality, management, earnings, liquidity, and
sensitivity to market risk. The ratings range from 1 to 5, with 1 being the highest rating and least
supervisory concern.
20
Treasury OIG, Safety and Soundness: Material Loss Review of Silverton Bank, N.A., OIG-10-033
(January 22, 2010)
Analysis of Bank Failures Reviewed by Treasury OIG Page 16
(OIG-16-052)
properly manage the bank’s risk profile and growth strategy.
Furthermore, OCC did not review TeamBank’s incentive
compensation or bonus plans, or ensure that the bank conducted
stress testing. We determined that the incentive compensation plan
and bonus plan for TeamBank’s loan officer encouraged
uncontrolled growth of the bank’s loan portfolio, which contributed
to the bank’s failure.
21
Other Supervision Issues
Several other supervisory issues, though not as common among
the banks, posed concerns. Specifically, both OCC and the legacy
OTS assigned CAMELS ratings that were too high, legacy OTS
allowed three banks to inappropriately backdate capital
transactions, and OCC allowed a lapse in supervisory coverage
after a bank’s charter conversion.
OCC Strengthened Its Supervisory Process
We made a number of audit recommendations to OCC to address
the causes of the bank failures and supervision weaknesses we
noted in our MLRs and in-depth reviews. The recommendations
addressed issues such as CRE concentrations, a lessons-learned
process, charter conversions, management oversight, volatile
funding sources, and investment securities. OCC generally
concurred with the recommendations and instituted policies and
procedures, updated examination guidance, and took other
corrective actions that met the intent of our recommendations,
including:
To address funding and liquidity risk management, OCC
modified its Community Bank Supervision Handbook.
22
In
addition, OCC, the legacy OTS, and FDIC issued an interagency
policy statement in May 2010. The policy statement
summarized the principles of sound liquidity risk management
that the agencies have issued in the past and reiterates the
21
Treasury OIG, Safety and Soundness: Material Loss Review of TeamBank, National Association,
OIG-10-001 (October 7, 2009).
22
Comptroller’s Handbook: Community Bank Supervision (January 2010).
Analysis of Bank Failures Reviewed by Treasury OIG Page 17
(OIG-16-052)
process that banks should follow to appropriately identify,
measure, monitor, and control their funding and liquidity risk.
23
To address the charter approval process and ensure an EIC is
promptly assigned after a charter conversion of a bank, OCC
formalized a process to perform second-level reviews of charter
conversion proposals prior to recommending approval of the
application. OCC also revised the Comptroller’s Licensing
Manual by expanding the Conversion Handoff Package prepared
by the licensing staff upon transfer of supervisory responsibility.
The package calls for specific attention to the timely
appointments of an EIC when a charter conversion becomes
effective.
24
To emphasize to examiners that MRAs are to be issued in
reports of examination in accordance with the criteria regarding
deviations from sound management and noncompliance with
laws or policies listed in the Comptroller’s Handbook, OCC
issued an MRA Reference Guide in June 2010. The guide set
forth expectations of examiners for proactive supervision, clear
and assertive communication of concerns to boards of directors,
and prompt follow-up on commitments for corrective action.
25
OCC revised guidance in October 2011 to establish a formal
rotation policy for EICs of banks.
26
To address the possibility of establishing limits or other controls
for concentrations that pose an unacceptable safety and
soundness risk, OCC approached other Federal banking
agencies for collaboration. To date, no interagency agreement
has been made, so in its absence, OCC revised its
Concentrations of Credit Handbook to help bankers and
examiners identify, analyze, and establish sound risk
management processes for concentrations of credit.
27
23
Interagency Policy Statement on Funding and Liquidity Risk Management (March 22, 2010).
24
OCC Comptroller’s Licensing Manual: Conversions (April 2010).
25
Midsize and Community Bank Supervision MRA Reference Guide (June 10, 2010).
26
PPM 5000-38(REV): Examiner-in-Charge Rotations, (October 31, 2011).
27
Comptroller’s Handbook: Concentrations of Credit (December 2011).
Analysis of Bank Failures Reviewed by Treasury OIG Page 18
(OIG-16-052)
To emphasize to examiners the importance of following OCC’s
guidance on (1) performing reconciliations of all reports
submitted by management to ensure that the reports are
accurate and agree with the bank’s general books and
(2) analyzing a bank’s new products to determine their effects
on credit risk, OCC sent an all-employee message on
February 11, 2013. The message reminded employees to follow
established OCC guidance for performing reconciliations of
reports received from bank management during examinations
and to evaluate the effect of new products on key risks,
including credit risk.
To emphasize to examiners the importance of following OCC’s
guidance to verify that the bank’s corrective actions have been
successful and timely, OCC sent an all-employee message on
February 11, 2013, to reinforce the expectation for examiners
to comply with all aspects of the July 1, 2010, MRA Reference
Guide.
To address the need to reassess guidance for examination of
investment securities, including GSE securities, OCC issued a
supervisory memo to all examining personnel on risk
management practices on August 10, 2009. OCC also issued
the “New Capital Rule Community Bank Guide” in July 2013
28
,
which raised the risk weight from 20 percent to 100 percent on
GSE preferred stock for national banks.
To address the need for formal guidance to address OCC’s
response to investigations and requests for information from
law enforcement agencies, OCC issued guidance on February 7,
2014, covering interaction with law enforcement agencies and
communication protocols for notifications to OCC headquarters
and OIG.
29
The guidance provides notification procedures for
when OCC should notify OIG regarding (1) efforts to obstruct or
hinder OCC’s statutory authority, (2) suspicious activity report
(SAR) filing, (3) initial contact with law enforcement personnel,
and (4) certain investigations.
28
New Capital Rule Community Bank Guide (July 2013).
29
PPM 5000-40: OCC Filings of SAR (February 7, 2014); PPM 5000-41: Notification Requirements to
the Treasury OIG for Examination Obstruction, Administrative Actions, SARs, and Contacts with
Law Enforcement (February 7, 2014)
Analysis of Bank Failures Reviewed by Treasury OIG Page 19
(OIG-16-052)
To address our recommendation that OCC establish, in policy, a
process to assess the causes of bank failures and the
supervision exercised over banks, and to take appropriate action
to address any significant supervisory weaknesses or concerns
identified, OCC established a lessons-learned review program in
February 2012. OCC’s lessons-learned review program provides
an independent assessment of the adequacy of bank supervision
for each OCC failed bank. It requires that a written summary
report—detailing issues of concern, causes of failure,
supervision best practices, and any recommended supervision
process enhancements—be submitted to the OCC ombudsman
30
for approval within 4 weeks of completion of examination
procedures. As of March 17, 2015, OCC completed all lessons-
learned reviews for every failed bank from 2008 forward. In
total, OCC completed 90 lessons-learned reviews, which
included reviews of 72 bank failures within the scope of this
review, as well as 18 failures that were not.
For a summary of OCC’s corrective actions planned or taken to
address our recommendations, by report, see appendix 6.
Other Initiatives
OCC has taken other initiatives to strengthen its supervisory
process during this wave of bank failures. For example, OCC has
processes in place to identify emerging risks to bank safety and
soundness. As we discussed in an April 2013 audit report, OCC
participates in various committees and groups that meet regularly
to identify emerging risks and communicate them to examiners and
banks.
31
The groups address potential risks by estimating potential
consequences, making recommendations for appropriate
supervisory responses, and issuing supervisory strategy guidance
to strengthen and improve the supervision process. In addition, the
30
The Ombudsman serves as an independent arbiter for the OCC’s regulated banks and their
customers by operating apart from the OCC bank supervision function and by reporting directly to
the Comptroller of the Currency. This separation enables the Ombudsman to respond independently
and fairly to the questions and complaints that consumers have about their banks, and to provide
bankers with a way to challenge agency decisions without fear of retribution or reprisal.
31
Treasury OIG, Safety and Soundness: OCC Identification of Emerging Risks, OIG-13-037 (April 9,
2013).
Analysis of Bank Failures Reviewed by Treasury OIG Page 20
(OIG-16-052)
committees and groups collaborate with other regulatory agencies,
such as the Board of Governors of the Federal Reserve System and
FDIC to identify emerging risks to national banks.
OCC also released guidance on MRAs in October 2014 establishing
procedures for examiners to identify and aggregate supervisory
concerns into MRAs.
32
The guidance focuses on the criteria,
communication, and follow-up of concerns in MRAs. According to
OCC, the guidance was a substantive change in MRA philosophy
with the intention of improving early identification of concerns due
to a bank’s deficient practices. Concurrent with the issuance of the
MRA guidance, OCC held required training sessions to ensure
employees understood the new standards and set up a SharePoint
site where examiners can refer to the guidance, submit questions,
and review frequently asked questions.
Furthermore, the Comptroller of the Currency and his executive
team requested that a small group of current and former senior
supervisory personnel from Australia, Canada, and Singapore,
along with a former staff member of the International Monetary
Fund, participate in an independent review of OCC’s supervision of
large and midsize banks. In a report issued to OCC in December
2013,
33
the team noted that OCC has better defined the roles of its
lead experts, improving its ability to focus on specific risk areas
and to identify emerging risks in these areas early. According to the
report, OCC exceled at taking information from examiners and
experts, further researching these topics, and implementing
applicable policy. Furthermore, OCC initiated a Lean Six Sigma
project to enhance the efficiency of its internal processes and
created an independent quality assurance process to review the
processes and practices of its supervision divisions.
The report made key recommendations covering six broad areas:
mission, vision, and strategic goals;
risk identification;
ratings systems;
staffing;
32
PPM 5400-11: Matters Requiring Attention, (October 9, 2014).
33
An International Review of OCC’s Supervision of Large and Midsize Institutions: Recommendations
to Improve Supervisory Effectiveness (December 4, 2013).
Analysis of Bank Failures Reviewed by Treasury OIG Page 21
(OIG-16-052)
scope and consistency of supervisory strategies; and
enterprise governance.
In response to the recommendations, OCC is:
developing a vision statement and strategic objectives that
clearly align to OCC’s mission statement and ensure bank
safety and soundness is the primary objective;
expanding the organization, functions, and responsibilities of its
large-bank lead-expert program to improve horizontal
perspective and analysis, systemic risk identification, quality
control and assurance, and resource prioritization;
establishing a formal rotation program for all examiners to
provide them with broader, fresh perspectives on a regular
basis;
formalizing an enterprise risk management framework that will
involve developing a risk appetite statement, creating a
decision-tree process, and enhancing the OCC’s existing
National Risk Committee framework and processes;
analyzing the effectiveness of the MRA process and developing
controls to better manage the large bank supervision MRA
follow-up to promote more timely and consistent resolution of
identified deficiencies;
improving policy development and decision-making response
times through better structured processes and strengthening
collaboration to allow more efficient and effective senior
management input for strategic issues;
developing standards for the varying supervisory responses to
emerging issues;
enhancing the application of CAMELS and integration with the
Risk Assessment System; and
enhancing identification of deteriorating banks and clarifying
supervisory expectations.
Analysis of Bank Failures Reviewed by Treasury OIG Page 22
(OIG-16-052)
Recommendations
We recommend that the Comptroller of the Currency continue to:
1. Address recommendations from our MLRs and in-depth reviews,
as well as the international review.
Management Response
Management responded that OCC will continue its practice of
identifying and taking appropriate actions in a timely manner in
response to recommendations from MLRs and in-depth reviews.
Further, OCC will continue with its initiatives that addressed and
implemented the December 2013 International Peer Review
recommendations.
OIG Comment
Management’s response meets the intent of our recommendation.
2. Participate in various committees and groups to identify
emerging risks and communicate them to examiners and banks.
Management Response
Management responded that the Comptroller of the Currency is a
member of the FSOC and the FFIEC, and OCC staff participates on
FSOC and FFEIC support committees. In addition, OCC participates
on international committees, supervisory colleges, and crisis
management groups; interagency and cross-governmental working
groups; and ad hoc groups where risks are raised and discussed.
OCC conveys these risks to examiners through the Comptroller’s
Handbook, numerous internal communications, and training, and to
examiners and banks through publications (e.g., the Semiannual
Risk Perspective), OCC Bulletins, other guidance documents, and
outreach efforts.
OIG Comment
Management’s response meets the intent of our recommendation.
Analysis of Bank Failures Reviewed by Treasury OIG Page 23
(OIG-16-052)
3. Use its newly implemented lessons-learned review program and
other analyses, as appropriate.
Management Response
Management responded that OCC will continue to use the lessons-
learned review program going forward.
OIG Comment
Management’s response meets the intent of our recommendation.
* * * * * *
We appreciate the courtesies and cooperation provided to our staff
during the audit. If you wish to discuss the report, you may
contact me at (202) 927-5776 or Alicia Weber, Audit Manager, at
(202) 927-5811. Major contributors to this report are listed in
appendix 8.
Susan Barron /s/
Audit Director
Appendix 1
Objectives, Scope, and Methodology
Analysis of Bank Failures Reviewed by Treasury OIG Page 24
(OIG-16-052)
Our objectives were to (1) identify common themes related to the
supervision of banks and thrifts and the causes of their failures and
(2) assess the Office of the Comptroller of the Currency’s (OCC)
actions to strengthen its supervisory process in response to our
audit recommendations and through other initiatives. We
conducted our fieldwork in Washington, DC from December 2011
through March 2015. The scope of our audit included banks that
failed from September 2007 through July 2012, and on which we
issued reports from January 1, 2008, through December 31, 2012.
To accomplish our objectives, we
reviewed a 2004 Department of the Treasury Office of
Inspector General (OIG) compendium report, Summary of
Treasury OIG’s Material Loss Reviews of Failed National Banks
and Thrift Institutions Between 1993 and 2002, to gain an
understanding of the common causes, supervisory issues, and
risks relating to the bank failures in the prior financial economic
crisis;
analyzed material loss review (MLR), failed bank review (FBR),
and in-depth review reports we issued from January 2008
through December 2012;
analyzed the number of failed banks by region and state.
identified the most common causes of failure and supervisory
issues associated with these failures;
reviewed a 2013 OIG report, OCC Identification of Emerging
Risks, to gain an understanding of the processes OCC has in
place to identify emerging risks to bank safety and soundness;
reviewed a December 2013 report on an international review of
OCC’s supervision of large and midsize banks
interviewed the Senior Advisor to the Senior Deputy Comptroller
for Midsize and Community Bank Supervision, the Deputy
Comptroller for Credit and Market Risk, and Bank Supervision
Specialist;
reviewed relevant guidance and documentation relating to the
OCC corrective actions taken to address the recommendations.
Appendix 1
Objectives, Scope, and Methodology
Analysis of Bank Failures Reviewed by Treasury OIG Page 25
(OIG-16-052)
compiled a list of our prior recommendations included in our
MLR and in-depth reports, and the related corrective actions
taken or planned by OCC;
34
and
reviewed relevant documentation supporting other initiatives
OCC is taking to improve its supervision of banks.
We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require
that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
34
Under section 38(k) of the Federal Deposit Insurance Act, in performing FBRs, the Offices of
Inspector Generals of Federal banking agencies are not required to review the supervision of the
banks or make recommendations.
Appendix 2
Failed Banks’ Background Information
Analysis of Bank Failures Reviewed by Treasury OIG Page 26
(OIG-16-052)
Table 1 provides demographic and financial information, including the locations, closure dates, total assets, and the
estimated losses to the Deposit Insurance Fund (DIF), as well as the percentages of estimated losses to assets, for
the 119 banks that failed from September 2007 and July 2012, and on which we issued reports from January 1,
2008, through December 31, 2012. The banks had $185.4 billion in aggregate total assets and an aggregate
estimated $35.3 billion in losses to the DIF.
Table 1: Summary of OCC-regulated and Legacy OTS-regulated Failed Banks, January 1, 2008–December 31, 2012
Bank
Location
Closure Date
Total Asset
Size
(in $ Millions)
Estimated DIF
Loss
(in $ Millions)
Estimated DIF
Loss as
Percentage of
Total Assets
OCC-regulated
1
ANB Financial, National Association
AR
May 9, 2008
2,100.0
214.0
10%
2
First Heritage Bank, National Association
CA
July 25, 2008
254.0
33.0
13%
3
First National Bank of Nevada
NV
July 25, 2008
3,400.0
706.0
21%
4
National Bank of Commerce
IL
January 16, 2009
430.9
92.5
21%
5
Ocala National Bank
FL
January 30, 2009
223.5
99.6
45%
6
TeamBank, National Association
KS
March 20, 2009
669.8
98.4
15%
7
Omni National Bank
GA
March 27, 2009
956.0
288.2
30%
8
Silverton Bank, N.A.
GA
May 1, 2009
4,100.0
608.3
15%
9
Citizens National Bank
IL
May 22, 2009
437.0
26.0
6%
10
First National Bank of Anthony
KS
June 19, 2009
156.9
38.3
24%
11
Vineyard Bank, National Association
CA
July 17, 2009
1,900.0
597.0
31%
12
Union Bank, National Association
AZ
August 14, 2009
124.0
54.5
44%
13
Corus Bank, N.A.
IL
September 11, 2009
7,000.0
797.9
11%
14
Southern Colorado National Bank
CO
October 2, 2009
39.5
6.6
17%
15
Flagship National Bank
FL
October 23, 2009
190.0
66.8
35%
16
Bank USA, National Association
1
AZ
October 30, 2009
194.0
30.2
16%
17
California National Bank
1
CA
October 30, 2009
6,989.0
900.1
13%
18
Citizens National Bank
1
TX
October 30, 2009
120.7
16.7
14%
19
Park National Bank
1
IL
October 30, 2009
4,701.0
417.7
9%
20
Pacific National Bank
1
CA
October 30, 2009
2,086.0
310.9
15%
21
San Diego National Bank
1
CA
October 30, 2009
3,560.0
366.7
10%
22
Riverside National Bank of Florida
FL
April 16, 2010
3,420.0
240.9
7%
23
Pacific Coast National Bank
CA
November 13, 2009
134.4
29.8
22%
Appendix 2
Failed Banks’ Background Information
Analysis of Bank Failures Reviewed by Treasury OIG Page 27
(OIG-16-052)
Bank
Location
Closure Date
Total Asset
Size
(in $ Millions)
Estimated DIF
Loss
(in $ Millions)
Estimated DIF
Loss as
Percentage of
Total Assets
24
First Security National Bank
GA
December 4, 2009
128.0
35.4
28%
25
Republic Federal Bank, N.A.
FL
December 11, 2009
4,428.0
120.6
3%
26
Valley Capital Bank, N.A.
AZ
December 11, 2009
40.3
7.4
18%
27
First National Bank of Georgia
GA
January 29, 2010
832.6
197.5
24%
28
Marshall Bank, National Association
MN
January 29, 2010
59.9
4.1
7%
29
The La Coste National Bank
TX
February 19, 2010
53.9
3.7
7%
30
American National Bank
OH
March 19, 2010
70.3
17.1
24%
31
Beach First National Bank
SC
April 9, 2010
585.1
130.3
22%
32
Amcore Bank, N.A.
IL
April 23, 2010
3,800.0
154.5
4%
33
BC National Banks
MO
April 30, 2010
67.2
11.4
17%
34
Granite Community Bank, N.A.
CA
May 28, 2010
102.9
17.3
17%
35
First National Bank, Rosedale, Mississippi
MS
June 4, 2010
60.4
12.6
21%
36
First National Bank, Savannah, Georgia
GA
June 25, 2010
252.5
68.9
27%
37
Bay National Bank
MD
July 9, 2010
282.2
17.4
6%
38
Home National Bank
OK
July 9, 2010
644.5
78.7
12%
39
First National Bank of the South
SC
July 16, 2010
682.0
74.9
11%
40
Williamsburg First National Bank
SC
July 23, 2010
139.3
8.8
6%
41
Community National Bank at Bartow
FL
August 20, 2010
67.9
10.3
15%
42
Independent National Bank
FL
August 20, 2010
156.2
23.2
15%
43
First Suburban National Bank
IL
October 22, 2010
148.7
30.9
21%
44
The First National Bank of Barnesville
GA
October 22, 2010
131.4
33.9
26%
45
Community National Bank
MN
December 17, 2010
31.6
3.7
12%
46
The Bank of Miami, N.A.
FL
December 17, 2010
448.2
64.0
14%
47
United Americas Bank, National Association
GA
December 17, 2010
242.3
75.8
31%
48
Canyon National Bank
CA
February 11, 2011
210.9
10.0
5%
49
First National Bank of Davis (In-Depth Review)
OK
March 11, 2011
90.2
26.5
29%
50
Western Springs National Bank and Trust
IL
April 8, 2011
186.8
34.0
18%
51
Rosemount National Bank
MN
April 15, 2011
37.6
3.6
10%
52
First National Bank of Central Florida
FL
April 29, 2011
352.0
42.9
12%
53
BankMeridan, National Association
SC
July 29, 2011
239.8
65.4
27%
54
Integra Bank, National Association
IN
July 29, 2011
2,200.0
205.9
9%
55
First National Bank of Olathe
KS
August 12, 2011
538.1
118.6
22%
56
First Southern National Bank
GA
August 19, 2011
164.6
39.6
24%
Appendix 2
Failed Banks’ Background Information
Analysis of Bank Failures Reviewed by Treasury OIG Page 28
(OIG-16-052)
Bank
Location
Closure Date
Total Asset
Size
(in $ Millions)
Estimated DIF
Loss
(in $ Millions)
Estimated DIF
Loss as
Percentage of
Total Assets
57
The First National Bank of Florida
FL
September 9, 2011
296.8
48.4
16%
58
Western National Bank
AZ
December 16, 2011
162.9
42.9
26%
59
American Eagle Savings Bank
PA
January 20, 2012
19.6
6.2
32%
60
Charter National Bank and Trust
IL
February 10, 2012
93.9
20.4
22%
61
SCB Bank
IN
February 10, 2012
182.6
33.9
19%
62
Home Savings of America
MN
February 24, 2012
434.1
38.8
9%
63
Unity National Bank (In-Depth Review)
GA
March 26, 2012
292.2
71.0
24%
64
Fort Lee, Federal Savings Bank
NJ
April 20, 2012
51.9
14.0
27%
65
Inter Savings Bank, FSB
MN
April 27, 2012
481.6
119.2
25%
66
Palm Desert National Bank
CA
April 27, 2012
125.8
23.4
19%
67
Plantation Federal Bank
SC
April 27, 2012
486.4
75.9
16%
68
Security Bank, National Association
FL
May 4, 2012
101.0
13.7
14%
69
Alabama Trust Bank, National Association
AL
May 18, 2012
51.6
11.4
22%
70
Carolina Federal Savings Bank
SC
June 8, 2012
54.4
17.1
31%
71
Second Federal Savings and Loan Association of
Chicago
IL
July 20, 2012
199.1
76.9
39%
OCC Total
$63,696.0
$8,402.2
13%
Legacy OTS-regulated
72
NetBank, FSB
GA
September 28, 2007
2,500.0
108.0
4%
73
IndyMac Bank, FSB
CA
July 11, 2008
32,010.0
10,700.0
33%
74
Ameribank, Inc.
WV
September 19, 2008
115.0
33.4
29%
75
Downey Savings and Loan Association, F.A.
CA
November 21, 2008
12,800.0
1,400.0
11%
76
PFF Bank and Trust
CA
November 21, 2008
3,700.0
729.6
20%
77
Suburban Federal Savings Bank
MD
January 30, 2009
360.0
126.0
35%
78
Waterfield Bank (In-Depth Review)
MD
March 5, 2009
155.6
42.5
27%
79
American Sterling Bank
MO
April 17, 2009
181.0
41.9
23%
80
First Bank of Idaho
ID
April 24, 2009
488.9
174.6
36%
81
BankUnited, FSB
FL
May 21, 2009
12,800.0
4,900.0
38%
82
Peoples Community Bank
OH
July 31, 2009
705.8
136.0
19%
83
Ebank
GA
August 21, 2009
143.0
46.3
32%
84
Guaranty Bank
TX
August 21, 2009
13,000.0
1,300.0
10%
85
Bradford Bank
MD
August 28, 2009
452.0
96.3
21%
Appendix 2
Failed Banks’ Background Information
Analysis of Bank Failures Reviewed by Treasury OIG Page 29
(OIG-16-052)
Bank
Location
Closure Date
Total Asset
Size
(in $ Millions)
Estimated DIF
Loss
(in $ Millions)
Estimated DIF
Loss as
Percentage of
Total Assets
86
Platinum Community Bank
IL
September 4, 2009
345.6
49.5
14%
87
Vantus Bank
IA
September 4, 2009
458.0
182.2
40%
88
Irwin Union Bank, FSB
KY
September 18, 2009
493.0
138.7
28%
89
Partners Bank
FL
October 23, 2009
65.5
34.6
53%
90
Home Federal Savings Bank
MI
November 6, 2009
14.9
5.4
36%
91
Century Bank, FSB
FL
November 13, 2009
728.0
266.5
37%
92
AmTrust Bank
OH
December 4, 2009
12,000.0
2,500.0
21%
93
Greater Atlantic Bank
VA
December 4, 2009
203.0
38.0
19%
94
First Federal Bank of California, FSB
CA
December 18, 2009
6,100.0
10.0
0.2%
95
New South Federal Savings Bank
AL
December 18, 2009
1,500.0
227.0
15%
96
Peoples First Community Bank
FL
December 18, 2009
1,800.0
514.7
29%
97
Charter Bank
NM
January 22, 2010
1,200.0
246.1
21%
98
La Jolla Bank, FSB
CA
February 19, 2010
3,600.0
1,035.0
29%
99
Key West Bank
FL
March 26, 2010
88.0
23.1
26%
100
First Federal Bank of North Florida
FL
April 16, 2010
393.3
6.0
2%
101
TierOne Bank
NE
June 4, 2010
2,800.0
313.8
11%
102
Ideal Federal Savings Bank
MD
July 9, 2010
6.3
2.1
33%
103
MainStreet Savings Bank, FSB
MI
July 16, 2010
97.4
11.4
12%
104
Olde Cypress Community Bank
FL
July 16, 2010
168.7
31.5
19%
105
Turnberry Bank
FL
July 16, 2010
263.9
34.4
13%
106
Woodlands Bank
SC
July 16, 2010
376.2
115.0
31%
107
Bayside Savings Bank, FSB
FL
July 30, 2010
66.1
16.2
25%
108
Imperial Savings and Loan Association
VA
August 20, 2010
9.4
3.5
37%
109
Los Padres Bank
CA
August 20, 2010
870.4
8.7
1%
110
Maritime Savings Bank
WI
September 17, 2010
350.5
83.6
24%
111
Security Savings Bank, FSB
KS
October 15, 2010
508.4
82.2
16%
112
First Arizona Savings
AZ
October 22, 2010
272.2
32.3
12%
113
Appalachian Community Bank, F.S.B.
GA
December 17, 2010
68.2
26.0
38%
114
United Western Bank
CO
January 21, 2011
2,050.0
292.3
14%
115
San Luis Trust Bank, FSB
CA
February 18, 2011
332.6
96.1
29%
116
Superior Bank
2
AL
April 15, 2011
3,000.0
290.0
10%
117
Coastal Bank
2
FL
May 6, 2011
129.4
13.4
10%
118
Atlantic Bank and Trust
2
SC
June 3, 2011
208.2
36.4
17%
Appendix 2
Failed Banks’ Background Information
Analysis of Bank Failures Reviewed by Treasury OIG Page 30
(OIG-16-052)
Bank
Location
Closure Date
Total Asset
Size
(in $ Millions)
Estimated DIF
Loss
(in $ Millions)
Estimated DIF
Loss as
Percentage of
Total Assets
119
Lydian Private Bank
3
FL
August 19, 2011
1,700.0
292.1
17%
Legacy OTS Total
$121,678.5
$26,892.4
22%
Total OCC and Legacy OTS
$185,374.5
$35,294.6
19%
Source: Department of the Treasury Office of Inspector General reports issued from January 1, 2008, through December 31, 2012.
1 Nine failed banks were owned by First Bank of Oak Park Corporation. OCC regulated the 6 national banks, and FDIC regulated the 3 state-chartered banks.
2 We issued our reports to OCC for these banks after OCC assumed regulatory responsibility for federal savings associations under Public Law 111-203. However, we
listed these banks as legacy OTS-regulated because they were closed by legacy OTS prior to the transfer of legacy OTS functions to OCC and other Federal banking
agencies pursuant to that law.
3 Pursuant to Public Law 111-203, OCC assumed regulatory responsibility for Lydian Private Bank shortly before its closure. Although OCC closed Lydian, we assessed
legacy OTS’ supervision and, therefore, included it as a legacy OTS-regulated bank.
Appendix 3
Bank Failures by Region
Analysis of Bank Failures Reviewed by Treasury OIG Page 31
(OIG-16-052)
Figures 2 and 3 break out the number of failed banks and their aggregate estimated
losses by region.
Figure 2: Failed Banks, by Region
Figure 3: Aggregate Estimated Losses, by Region (in $ millions)
Sources: Analysis of the Department of the Treasury Office of Inspector General reports issued from January 1,
2008, through December 31, 2012.
18
43
24
34
Northeastern
Southern
Central
Western
$903.20
$10,642.40
$5,001.70
$18,747.30
Northeastern
Southern
Central
Western
Appendix 4
Common Causes of Bank Failures
Analysis of Bank Failures Reviewed by Treasury OIG Page 32
(OIG-16-052)
Table 2 summarizes the common causes of the 119 failed banks that we reviewed. The “Various” column includes
additional causes that occurred less frequently.
Table 2: Common Causes of Bank Failures
Institution
High Loan
Concentration
in CRE
Inadequate
Credit
Administration
and Risk
Management
Reliance on
Wholesale
Funding
Concentration in
Nontraditional
Mortgage Loans
Other
Concentration
GSE
Various
OCC-regulated
ANB Financial, National Association
x
x
x
x
First Heritage Bank, National Association
x
x
First National Bank of Nevada
x
x
x
National Bank of Commerce
x
Ocala National Bank
x
x
x
TeamBank, National Association
x
x
x
x
Omni National Bank
4
x
x
x
Silverton Bank, N.A.
4
x
x
x
x
Citizens National Bank
4
x
x
x
x
x
First National Bank of Anthony
x
x
Vineyard Bank, National Association
x
x
x
Union Bank, National Association
x
x
x
Corus Bank, N.A.
4
x
x
x
Southern Colorado National Bank
x
x
Flagship National Bank
4
x
x
Bank USA, National Association
1
x
x
x
California National Bank
1
x
x
x
Citizens National Bank
14
x
Park National Bank
14
x
x
x
Pacific National Bank
1
x
x
x
San Diego National Bank
1
x
x
x
Riverside National Bank of Florida
4
x
x
x
x
Pacific Coast National Bank
x
x
x
First Security National Bank
x
x
x
Republic Federal Bank, N.A.
x
x
Valley Capital Bank, N.A.
4
x
x
x
First National Bank of Georgia
x
x
x
Marshall Bank, National Association
x
Appendix 4
Common Causes of Bank Failures
Analysis of Bank Failures Reviewed by Treasury OIG Page 33
(OIG-16-052)
Institution
High Loan
Concentration
in CRE
Inadequate
Credit
Administration
and Risk
Management
Reliance on
Wholesale
Funding
Concentration in
Nontraditional
Mortgage Loans
Other
Concentration
GSE
Various
The La Coste National Bank
x
American National Bank
x
x
x
Beach First National Bank
x
x
x
Amcore Bank, N.A.
x
x
BC National Banks
x
x
x
Granite Community Bank, NA
x
x
First National Bank, Rosedale, Mississippi
x
First National Bank, Savannah, Georgia
x
x
Bay National Bank
x
x
Home National Bank
4
x
x
First National Bank of the South
x
x
Williamsburg First National Bank
x
x
Community National Bank at Bartow
x
x
Independent National Bank
x
First Suburban National Bank
x
x
The First National Bank of Barnesville
4
x
x
Community National Bank
x
x
The Bank of Miami, N.A.
x
x
United Americas Bank, National Association
x
x
x
x
x
Canyon National Bank
x
x
First National Bank of Davis (In-Depth Review)
x
Western Springs National Bank and Trust
4
x
x
Rosemount National Bank
x
x
First National Bank of Central Florida
x
x
x
BankMeridian, National Association
x
x
x
Integra Bank, National Association
4
x
x
x
First National Bank of Olathe
x
x
First Southern National Bank
x
x
x
The First National Bank of Florida
x
x
Western National Bank
4
x
x
American Eagle Savings Bank
x
x
Charter National Bank and Trust
4
x
x
SCB Bank
x
x
x
Home Savings of America
x
x
Appendix 4
Common Causes of Bank Failures
Analysis of Bank Failures Reviewed by Treasury OIG Page 34
(OIG-16-052)
Institution
High Loan
Concentration
in CRE
Inadequate
Credit
Administration
and Risk
Management
Reliance on
Wholesale
Funding
Concentration in
Nontraditional
Mortgage Loans
Other
Concentration
GSE
Various
Unity National Bank (In-Depth Review)
x
x
x
x
Fort Lee, Federal Savings Bank
x
x
Inter Savings Bank, FSB
x
x
Palm Desert National Bank
x
x
Plantation Federal Bank
x
x
Security Bank, National Association
x
x
Alabama Trust Bank, National Association
4
x
x
Carolina Federal Savings Bank
x
x
x
Second Federal Savings and Loan Association of Chicago
x
x
x
OCC-regulated Total
57
59
16
5
8
6
*
Legacy OTS-regulated
NetBank, FSB
x
x
IndyMac Bank, FSB
x
x
x
x
x
Ameribank, Inc.
x
x
Downey Savings and Loan, F.A.
x
x
x
PFF Bank and Trust
x
Suburban Federal Savings Bank
x
x
x
Waterfield Bank (In-Depth Review)
x
x
x
x
American Sterling Bank
4
x
x
x
First Bank of Idaho
4
x
x
BankUnited, FSB
4
x
x
x
Peoples Community Bank
4
x
x
ebank
x
x
x
x
Guaranty Bank
x
Bradford Bank
x
x
Platinum Community Bank
4
x
Vantus Bank
x
x
x
x
Irwin Union Bank, FSB
x
x
Partners Bank
x
x
x
Home Federal Savings Bank
x
Century Bank, FSB
4
x
x
x
x
x
AmTrust Bank
x
x
x
Greater Atlantic Bank
x
x
x
Appendix 4
Common Causes of Bank Failures
Analysis of Bank Failures Reviewed by Treasury OIG Page 35
(OIG-16-052)
Institution
High Loan
Concentration
in CRE
Inadequate
Credit
Administration
and Risk
Management
Reliance on
Wholesale
Funding
Concentration in
Nontraditional
Mortgage Loans
Other
Concentration
GSE
Various
First Federal Bank of California, FSB
x
x
x
x
New South Federal Savings Bank
x
x
Peoples First Community Bank
x
x
Charter Bank
x
x
x
x
La Jolla Bank, FSB
4
x
x
x
Key West Bank
x
x
First Federal Bank of North Florida
x
x
TierOne Bank
4
x
x
x
Ideal Federal Savings Bank
4
x
x
MainStreet Savings Bank, FSB
x
Olde Cypress Community Bank
Turnberry Bank
x
x
Woodlands Bank
x
x
Bayside Savings Bank, FSB
x
x
Imperial Savings and Loan Association
x
Los Padres Bank
x
x
x
Maritime Savings Bank
x
x
Security Savings Bank, FSB
x
x
First Arizona Savings
x
x
x
x
Appalachian Community Bank, FSB
x
United Western Bank
4
x
x
San Luis Trust Bank, FSB
x
x
Superior Bank
24
x
x
x
Coastal Bank
24
x
x
Atlantic Bank & Trust
3
x
x
x
Lydian Private Bank
34
x
x
x
Legacy OTS-regulatedTotal
32
27
8
15
10
0
*
Total OCC and Legacy OTS
89
86
24
20
18
6
*
Source: Department of the Treasury Office of Inspector General reports issued from January 1, 2008, through December 31, 2012.
1
Nine failed banks were owned by First Bank of Oak Park Corporation. OCC regulated the 6 national banks, and FDIC regulated the 3 state-chartered banks.
2
We issued our reports to OCC for these banks after OCC assumed regulatory responsibility for federal savings associations pursuant to P.L.111-203.
However, we listed these banks as legacy OTS-regulated because they were closed by legacy OTS prior to legacy OTS’s transfer to OCC.
3
Pursuant to P.L. 111-203, OCC assumed regulatory responsibility for Lydian Private Bank shortly before its closure. Although OCC closed Lydian, we
Appendix 4
Common Causes of Bank Failures
Analysis of Bank Failures Reviewed by Treasury OIG Page 36
(OIG-16-052)
assessed legacy OTS’s supervision and, therefore, included it as a legacy OTS-regulated bank.
4
We identified certain matters in 29 failed banks relating to potential fraud that we referred or provided information to the Department of the Treasury’s
Office of Inspector General’s Office of Investigation.
Appendix 5
Common Supervisory Themes of Bank Failures
Analysis of Bank Failures Reviewed by Treasury OIG Page 37
(OIG-16-052)
Table 3 summarizes the supervision trends identified in our material loss reviews (MLR) and in-depth
reviews. Offices of Inspector Generals (OIG) of federal regulators are not required to assess supervision as
part of failed bank reviews; therefore, we did report on supervision issues in those reports. The “Various”
column includes additional supervision issues that occurred less frequently.
Table 3: Supervisory Trends Reported in the MLRs and In-depth Reviews
Institution
Stronger Actions
Warranted and/or
Actions Untimely
Guidance Not
Followed and/or
Lack of Appropriate
Guidance
Key Issues Not
Identified or Not
Identified Timely
Appropriate
Supervision
Various
OCC-regulated
ANB Financial, National Association
X
X
First Heritage Bank, National Association
X
X
First National Bank of Nevada
X
X
National Bank of Commerce
X
Ocala National Bank
X
X
TeamBank, National Association
X
X
X
Omni National Bank
X
X
Silverton Bank, N.A.
X
X
X
Citizens National Bank
X
First National Bank of Anthony
X
Vineyard Bank, National Association
X
X
Union Bank, National Association
X
Corus Bank, N.A.
X
X
Flagship National Bank
X
California National Bank
1
X
Park National Bank
1
X
Pacific National Bank
1
X
San Diego National Bank
1
X
Appendix 5
Common Supervisory Themes of Bank Failures
Analysis of Bank Failures Reviewed by Treasury OIG Page 38
(OIG-16-052)
Institution
Stronger Actions
Warranted and/or
Actions Untimely
Guidance Not
Followed and/or
Lack of Appropriate
Guidance
Key Issues Not
Identified or Not
Identified Timely
Appropriate
Supervision
Various
Riverside National Bank of Florida
X
X
Pacific Coast National Bank
X
X
X
First Security National Bank
X
Republic Federal Bank, N.A.
X
First National Bank of Georgia
X
Amcore Bank, N.A.
X
X
X
First National Bank of Davis (In-depth)
X
X
X
Integra Bank, National Association
X
Unity National Bank (In-depth)
X
OCC-regulated Total
14
16
2
7
*
Legacy OTS-regulated
NetBank, FSB
X
X
X
IndyMac Bank, FSB
X
X
X
X
Ameribank, Inc.
X
X
X
X
Downey Savings and Loan Association, F.A.
X
X
PFF Bank and Trust
X
Suburban Federal Savings Bank
X
X
Waterfield Bank (In-depth)
X
X
American Sterling Bank
X
X
X
X
First Bank of Idaho
X
X
X
X
BankUnited, FSB
X
X
X
X
Peoples Community Bank
X
Ebank
X
X
Guaranty Bank
X
Appendix 5
Common Supervisory Themes of Bank Failures
Analysis of Bank Failures Reviewed by Treasury OIG Page 39
(OIG-16-052)
Institution
Stronger Actions
Warranted and/or
Actions Untimely
Guidance Not
Followed and/or
Lack of Appropriate
Guidance
Key Issues Not
Identified or Not
Identified Timely
Appropriate
Supervision
Various
Bradford Bank
X
X
Platinum Community Bank
X
X
Vantus Bank
X
X
Irwin Union Bank, FSB
X
X
Partners Bank
X
X
X
Century Bank, FSB
X
X
X
AmTrust Bank
X
Greater Atlantic Bank
X
X
First Federal Bank of California, FSB
X
X
New South Federal Savings Bank
X
X
X
Peoples First Community Bank
X
X
X
Charter Bank
X
X
La Jolla Bank, FSB
X
TierOne Bank
X
United Western Bank
X
X
X
Superior Bank
2
X
X
Lydian Private Bank
3
X
X
Legacy OTS-regulated Total
28
22
11
0
*
Total OCC and Legacy OTS
42
38
13
7
*
Sources: Department of the Treasury OlG reports issued from January 1, 2008, through December 31, 2012.
1 Nine failed banks were owned by First Bank of Oak Park Corporation. OCC regulated the 6 national banks, and FDIC regulated the 3 state-chartered banks.
Of the 6 national banks OCC regulated, 4 required MLRs and are included in the above chart.
2 We issued our report to OCC for Superior Bank after OCC assumed regulatory responsibility for federal savings associations pursuant to P.L. 111-203.
However, we listed Superior Bank as legacy OTS-regulated because they were closed by legacy OTS prior to legacy OTS’s transfer to OCC.
3 Pursuant to P.L. 111-203, OCC assumed regulatory responsibility for Lydian Private Bank shortly before its closure. Although OCC closed Lydian, we
assessed legacy OTS’s supervision and, therefore, included it as a legacy OTS-regulated bank.
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 40
(OIG-16-052)
This appendix provides recommendations we made to the Office of the Comptroller of the Currency (OCC) as a
result of our material loss reviews and in-depth reviews of OCC-regulated failed banks, as well as corrective actions
taken or planned by OCC. With one exception related to Omni National Bank noted later in this appendix, OCC
management concurred with the recommendations and has taken or planned corrective actions that are responsive
to the recommendations. In certain instances, the recommendations address matters that require ongoing OCC
management and examiner attention.
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
Safety and Soundness: Material
Loss Review of ANB Financial,
National Association
OIG-09-013 (November 25,
2008)
Re-emphasize to examiners that examiners must
closely investigate a bank’s circumstances and
alter its supervisory plan if certain conditions
exist as specified in OCC’s Examiner’s Guide to
Problem Bank Identification, Rehabilitation, and
Resolution.
OCC communicated the findings of our report
and its lessons-learned review to field staff
during a national conference call in
March 2009 to reinforce its expectations of
examiners in the execution of its supervisory
process.
In addition to numerous policies and processes
currently in place to ensure timely recognition
and response to increasing risks in banks,
including formal enforcement action if
warranted, OCC provided guidance to
examiners on assessing commercial real estate
(CRE) portfolios and discussed this guidance in
April 2008 and October 2008 conference calls
with examiners.
Re-emphasize to examiners that formal action is
presumed warranted when certain
circumstances specified in OCC’s Enforcement
Action Policy (PPM 5310-3) exist. Examiners
should also be directed to document in the
examination files the reasons for not taking
formal enforcement action if those
circumstances do exist.
OCC refreshed examiner awareness of PPM
5310-3 and promoted consistency in the
application of the policy in three ways: in a
written document, through discussions at
district management meetings, and during an
all-examiner conference call in October 2008.
The central message was that enforcement
actions should be taken at an early stage, while
problems are still manageable and the
prospects for rehabilitation or, alternatively,
sale or merger of the bank, are still good.
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 41
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
Reassess guidance and examination procedures
in the Comptroller’s Handbook related to bank
use of wholesale funding with focus on heavy
reliance on brokered deposits and other nonretail
deposit funding sources for growth.
The liquidity section of the Comptroller’s
Handbook for community bank supervision was
revised to address liquidity issues in light of the
financial crisis.
1
In addition, an interagency
policy statement on funding and liquidity risk
management was issued on March 22, 2010.
2
Establish in policy a “lessons-learned” process
to assess the causes of bank failures and the
supervision exercised over the institution and to
take appropriate action to address any
significant weaknesses or concerns identified.
OCC established a lessons-learned review
program requiring an independent assessment
of the adequacy of bank supervision for each
failed institution under OCC jurisdiction to be
completed and submitted to the Ombudsman
within four weeks of completion of
examination procedures.
3
Safety and Soundness: Material
Loss Review of First National
Bank of Nevada and First
Heritage Bank, National
Association
OIG-09-033 (February 27, 2009)
Re-emphasize to examiners the need to ensure
that banks take swift corrective actions in
response to examination findings.
OCC re-emphasized the requirements of its
enforcement action policies to examiners and
the need to ensure banks take swift corrective
actions in response to examination findings
during a national conference call. OCC tracks
the follow-up on outstanding concerns in the
supervisory strategies for individual banks.
Subsequent to the failure of First National Bank
of Nevada and First Heritage bank, OCC's
Enterprise Governance unit conducted a special
1
The liquidity section of the Comptroller’s Handbook, Community Bank Supervision (January 2010) discusses, among other things,
evaluating risk in wholesale and other non-deposit funding activities and determining stability by reviewing deposit structure and
stability of specific types of accounts, including brokered deposits.
2
Federal Register/Vol. 75, No. 54, Interagency Policy Statement on Funding and Liquidity Risk Management (March 22, 2010) issued by
OCC, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, the legacy Office of Thrift
Supervision, and the National Credit Union Administration summarizes the principles of sound liquidity risk management that the
agencies issued in the past and, when appropriate, supplements them with the “Principles for Sound Liquidity Risk Management and
Supervision” issued by the Basel Committee on Banking Supervision issued in September 2008.
3
Comptroller of the Currency, Office of the Ombudsman, Failed Institutions Lessons Learned Review Program Statement
(February 2012).
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 42
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
review to confirm that all community bank
quality assurance programs contain specific
quality management elements pertaining to
corrective action, follow-up, and enforcement.
Re-emphasize to examiners OCC’s policy on the
preparation of supervision workpapers (i.e.,
workpapers are to be clear, concise, and readily
understood by other examiners and reviewers).
An OCC official stated that they ensure that
observations about the quality of workpapers
identified as part of its quality assurance
processes involving regular views of samples of
supervision work papers, and recommendations
for improving documentation, are included in
the communication of quality assurance results
to examiners. OCC re-emphasized OCC’s policy
on the preparation of supervision workpapers
and the importance of workpaper quality and
completeness during a national conference call
with examiners.
Safety and Soundness: Material
Loss Review of the National
Bank of Commerce
OIG-09-042 (August 6, 2009)
Conduct a review of investments by national
banks for any potential high-risk concentrations
and take appropriate supervisory action.
During the months leading up to the
government intervention at Federal National
Mortgage Association and Federal Home Loan
Mortgage Corporation, OCC proactively used
call report financial data to identify banks with
concentrations in government-sponsored
enterprise (GSE) securities. Banks with high
exposure relative to their capital were identified
and supervisory offices were provided with the
information to investigate further and take
appropriate supervisory action. This process is
embedded in ongoing supervisory activities and
will be used on an ongoing basis to identify
and address other concentrations in high-risk
securities.
Reassess examination guidance regarding
investment securities, including GSE securities.
OCC issued a supervisory memo to all
examining personnel on investment securities
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 43
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
risk management practices on August 10,
2009.
4
OCC also issued the “New Capital Rule
Community Bank Guide” in October 2013.
Safety and Soundness: Material
Loss Review of Ocala National
Bank
OIG-09-043 (August 26, 2009)
Caution examiners and their supervisors that
when a bank’s condition has deteriorated, it is
incumbent on examiners to properly support and
document in examination workpapers the
CAMELS component and composite ratings
assigned, including those that may not have
changed from prior examinations, as well as
support a decision not to take an enforcement
action.
OCC senior management used the “lessons
learned" in earlier bank failures to illustrate the
importance of being assertive in identifying and
following through on identified weaknesses in a
timely manner. OCC management also
reiterated that compliance with OCC's policy
on workpaper documentation is particularly
important in problem bank situations. OCC also
discussed this topic during an October 2009
national conference call.
Remind examiners that it is prudent to expand
examination procedures for troubled or high-risk
banks to review the appropriateness of
(a) dividends and (b) payments to related
organizations, particularly when the dividends or
payments may benefit bank management and
board members. In this regard, OCC should
reassess, and revise as appropriate, its
examination guidance for when expanded
reviews of dividends and related organizations
should be performed.
OCC responded that heightened scrutiny of
certain dividends and payments to related
organization is appropriate. OCC believes its
existing guidance is sufficient to compel
examiners to perform expanded reviews of
dividends and payments to related
organizations when appropriate. During an
October 2009 national conference call, OCC
reinforced to examining staff the prudence of
expanding examination procedures for
dividends and related organizations when
warranted, particularly when payments may
benefit bank management or board members.
Emphasize to examiners that matters requiring
attention (MRAs) are to be issued in reports of
OCC reinforced the importance of adhering to
its MRA policy during an October 2009
4
Comptroller of the Currency, Supervisory Memo (SM 2009-5), Examiner Guidance on Investment Securities Risk Management Practices
(August 10, 2009) provides guidance to examiners in evaluating investment portfolio activities and the changing risk profile of bank
investment portfolios. Specifically, it provides additional guidance on potential red flags and appropriate risk management of complex,
structured investments, evaluating re-securitizations, and determining asset quality ratings and risk-based capital calculations.
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 44
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
Safety and Soundness: Material
Loss Review of TeamBank,
National Association
OIG-10-01 (October 7, 2009)
examination (ROEs) in accordance with the
criteria regarding deviations from sound
management and noncompliance with laws or
policies listed in the Comptroller’s Handbook.
national conference call and again in a
September 2013 call. OCC plans to continue
to reinforce this message in numerous ways,
including quality assurance activities and
management discussions.
Emphasize to examiners the need to
a. adequately assess the responsibilities of a
controlling official (chief executive
officer/president, for example) managing the
bank to ensure that the official’s duties are
commensurate with the risk profile and
growth strategy of the institution
b. review incentive compensation and bonus
plans for executives and loan officers; and
c. ensure that banks conduct transactional
and portfolio stress testing when
appropriate
OCC stated that examiners are provided with
guidance on (a) assessing the adequacy of
management resources to ensure they are
commensurate with a bank's risk profile and
growth strategies and (b) incentive and
compensation plans.
Additionally, the Senior Deputy Comptroller for
Midsize and Community Bank Supervision and
the Director for Special Supervision
emphasized these points during an
October 2009 conference call with examiners.
Having found that the use of portfolio stress
testing and sensitivity analysis required by
OCC policy continues to be challenging for
many banks, particularly community banks,
OCC developed a transactional-level CRE Loan
Stress Workbook, which is available to all
national banks on OCC's National Bank Net
Web site. An additional model designed for
CRE stress testing at the portfolio level was
implemented on September 30, 2012. OCC
continues to use outreach and other activities
to encourage national banks to use these tools
in measuring and managing the level of risk in
their portfolios. The model was deployed to
BankNet on September 27, 2012.
Safety and Soundness: Material
Loss Review of Omni National
Bank
Review OCC processes to ensure that more
timely enforcement action is taken once the
need for such action is identified.
OCC did not agree with this recommendation.
In its response to our report, OCC asserted that
current policies are sufficient to ensure that
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 45
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
OIG-10-017 (December 9, 2009)
timely enforcement action is taken. We
accepted its position with respect to its current
processes and consider the recommendation
closed.
Impress upon examiner staff the importance of
completing all activities in annual supervisory
cycles, including quarterly monitoring. In this
regard, supervisors should ensure that quarterly
monitoring activities are scheduled and carried
out.
Examiners were reminded that periodic
monitoring is integral to effective supervision
during a March 2010 national conference call.
Implement a policy for examiner-in-charge (EIC)
rotation for midsize and community banks.
Issued revised guidance establishing a formal
rotation policy for EIC of banks supervised in
the large bank supervision and midsize and
community bank supervision lines of business.
5
Safety and Soundness: Material
Loss Review of Silverton Bank,
N.A.
OIG-10-033 (January 22, 2010)
Ensure that after a charter conversion an EIC is
promptly assigned and supervisory coverage of
the bank is continuous, to include the timely
initiation (within no more than 12 months of the
full-scope examination by the prior regulator) of
the first full-scope examination after conversion.
Revised the Conversions booklet of the
Comptroller's Licensing Manual by expanding
the Conversion Handoff Package prepared by
licensing staff upon transfer of supervisory
responsibility to include specific language
calling attention to the requirements to appoint
an EIC, who will follow-up with the bank within
120 days of the effective date of the
conversion, and to schedule a target date for
initiating the first full-scope examination based
on the last full-scope examination conducted
by the previous regulator.
Ensure that appropriate actions are taken to
amend or reinforce OCC guidance in response
to the lessons-learned review of the Silverton
failure.
OCC established a lessons-learned review
program requiring an independent assessment
of the adequacy of bank supervision for each
failed institution under OCC jurisdiction to be
completed and submitted to the Ombudsman
5
Comptroller of the Currency, Policies & Procedures Manual (PPM 5000-38(REV), Bank Supervision Operations, Examiner-in-Charge
Rotations (October 31, 2011)
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 46
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
within four weeks of completion of
examination procedures.
OCC also transferred the responsibility for
performing lessons-learned reviews of bank
failures to its Ombudsman.
Ensure that banks seeking conversion to a
national charter address all significant
deficiencies identified by OCC or prior regulators
before approval.
OCC updated the Conversion booklet of the
Comptroller’s Licensing Manual to include a
more thorough description of the procedures
that should be followed to determine that
banks seeking conversion satisfactorily address
significant deficiencies before approval.
6
Formalize the process for second-level reviews
of charter conversions.
The Supervisory Review Committee charter for
each district and midsize was amended to
formalize the process and require second level
reviews of charter conversions.
Safety and Soundness: Material
Loss Review of Citizens National
Bank
OIG-10-038 (March 22, 2010)
Due to the complexity of the risk-based capital
treatment of structured investment securities,
assess the adequacy of OCC Bulletin 2009-15,
Investment Securities after it has been in use
for a reasonable time.
OCC determined that no changes are
necessary to OCC Bulletin 2009-15.
Work with OCC’s regulatory partners to
determine whether to propose legislation and/or
change regulatory guidance to establish limits or
other controls for bank investments.
OCC works with other regulators to develop
guidance on a variety of subjects where
common issues exist. The Federal Financial
Institutions Examination Council and other
interagency forums are evaluating a number of
factors that contributed to the current
problems in the banking industry and will
consider what regulatory changes are needed.
As of June 10, 2010, OCC determined
additional guidance is not needed and planned
to continue to evaluate this issue.
6
Comptroller’s Licensing Manual, Conversions (April 2010)
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 47
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
In a Task Force on Supervision Meeting on
August 7, 2012, our recommendation was
discussed and there was general agreement
that the agencies have sufficient supervisory
authority to address compliance with
applicable standards and that a legislative
change would not be necessary.
Safety and Soundness: Material
Loss Review of Union Bank,
National Association
OIG-CA-10-009 (May 11, 2010)
(Review performed by Mayer
Hoffman McCann P.C., an
independent certified public
accounting firm, under the
supervision of the Department of
the Treasury (Treasury) Office of
Inspector General (OIG))
Work with OCC’s regulatory partners to
determine whether to propose legislation and/or
change regulatory guidance to establish limits or
other controls for concentrations that pose an
unacceptable safety and soundness risk and
determine an appropriate range of examiner
response to high-risk concentrations.
OCC responded that it works with other
regulators to develop guidance on a variety of
subjects where common issues or concerns
exist. Federal banking agencies are in the
process of evaluating a number of factors that
contributed to current problems in the banking
industry and will consider what regulatory
changes are needed. OCC responded that,
although it was too early to determine whether
the final outcome of the agencies’ deliberations
will include changes in concentration limits or
risk management expectations, it would
continue to study the situation and interface
with other regulatory partners.
Safety and Soundness: Material
Loss Review of Vineyard Bank,
National Association
OIG-10-044 (July 13, 2010)
No new recommendations.
Reiterated prior recommendations made in our
Silverton report.
No additional actions necessary.
Safety and Soundness: Material
Loss Review of Flagship National
Bank
OIG-10-044 (May 3, 2011)
Same recommendation as stated above for
Union Bank, National Association.
OCC stated in its response that it proposed a
group to study the issue of CRE concentrations
in interagency forums. The proposal was not
acted on, so OCC convened an internal group
to study it and develop solutions. OCC revised
its Concentrations of Credit Handbook to
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 48
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
address concerns raised in the audit. OCC will
continue to seek an interagency agreement.
7
Emphasize to examiners that MRAs are to be
issued in ROEs in accordance with the criteria
regarding deviations from sound management
and noncompliance with laws or policies listed
in the Comptroller’s Handbook.
OCC stated that its policy for utilizing MRAs is
clearly stated within the Comptroller’s
Handbook. In addition, it distributed a MRA
Reference Guide in July 2010 to further
emphasize expectations for proactive
supervision, clear and assertive communication
of concerns to the Board of Directors, and
prompt follow-up on commitments for
corrective action. Training was also conducted
on the guide in all field offices in 2010.
8
Safety and Soundness: Material
Loss Review of First Security
National Bank
OIG-11-075 (June 10, 2011)
(Review performed by Crowe
Horwath LLP, an independent
certified public accounting firm,
under the supervision of the
Treasury OIG)
No new recommendations
No additional actions necessary.
Safety and Soundness: Material
Loss Review of First National
Bank of Anthony
OIG-11-105 (September 20,
2011)
No new recommendations.
No additional actions necessary.
Safety and Soundness: Material
Loss Review of Amcore Bank,
N.A.
OIG-12-035 (December 28,
2011)
Ensure:
According to OCC, lead experts now report to
the Midsize Bank Supervision Risk Officer and
do not have direct supervisory responsibility for
specific banks. Midsize Bank Supervision has
incorporated mandatory lead expert reviews in
7
Comptroller of the Currency, Concentrations of Credit Handbook (December 2011).
8
Midsize and Community Bank Supervision MRA Reference Guide (July 2010).
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 49
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
a) lead expert's input is considered in
supervisory decisions,
b) Midsize Bank supervisory office personnel
follow established OCC guidance to resolve
issues raised by the lead expert, and
c) resolution of recommendations is
documented. OCC should determine whether
there are other concerns by lead experts that are
currently unresolved and ensure appropriate
agreement is reached on those matters.
its supervisory product workflow. EIC must
address the lead expert’s comments, and any
differences must be resolved to the satisfaction
of both parties prior to finalizing and issuing
the product to the bank. Any supervisory
matters that have not been resolved at the
EIC/lead expert level are elevated to the Risk
Officer for resolution. In addition, a system
(WALTER) was developed in Midsize Bank
Supervision to track the flow of a supervisory
product, including reviews by lead experts.
Their reports capture issues they raise, and
documents are adjusted accordingly.
Ensure relevant emails are maintained in the
supervisory record (Examiner View) as
appropriate.
In a September 30, 2013, national conference
call, OCC emphasized maintaining support for
emails in Examiner View.
Implement policies and controls to monitor and
ensure that ROEs are issued timely.
OCC implemented an automated system for
tracking and monitoring all written supervisory
communications, including ROEs, from
submission by examiners through the time they
are issued to the bank. This allows Midsize
Bank Supervision to promptly identify any ROE
or other communication that is not being
reviewed and processed in a timely manner,
and to address other issues. OCC will also
reinforce to all staff the importance of issuing
ROEs and other supervisory products in a
timely manner.
Safety and Soundness: In-depth
Review of Unity National Bank
OIG-12-036 (January 11, 2012)
No new recommendations.
No additional actions necessary.
Safety and Soundness: Material
Loss Review of Corus Bank, N.A.
OIG-12-037 (January 24, 2012)
Work with OCC's regulatory partners to
determine whether regulatory guidance be
changed, or legislation should be proposed to
In a Task Force on Supervision meeting on
August 7, 2012, this topic was discussed.
Members generally agreed that the agencies
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 50
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
amend 12 U.S.C. 84, Lending Limits, to prohibit
or limit the sale of loan participations by a bank
to its holding company for purpose of complying
with the legal lending limit.
have sufficient supervisory authority to address
compliance with applicable standards and that
a legislative change would not be necessary.
Safety and Soundness: Material
Loss Review of Riverside
National Bank of Florida
OIG-12-039 (January 31, 2012)
Determine whether a limit, such as a specific
percentage of capital, should be placed on the
amount national banks can invest in complex
mortgage-related securities before supervisory
approval must be obtained.
In a Task Force on Supervision meeting on
August 7, 2012, our recommendation was
discussed. Members generally agreed that the
agencies have sufficient supervisory authority
to address compliance with applicable
standards and that a legislative change would
not be necessary.
Work with regulatory partners to reevaluate the
regulatory capital treatment of unrealized losses
on available-for-sale debt securities in
determining Tier 1 capital.
On October 11, 2013, OCC and the Federal
Reserve System adopted a final rule that
revises their risk-based and leverage capital
requirements for banking organizations.
9
This
rule also addresses the inclusion of
accumulated other comprehensive income in
Tier 1 capital.
Safety and Soundness: Material
Loss Review of Republic Federal
Bank, N.A.
OIG-12-040 (February 7, 2012)
No new recommendations.
No additional actions necessary.
Safety and Soundness: Material
Loss Review of First National
Bank of Georgia
OIG-12-041 (February 14, 2012)
No new recommendations.
No additional actions necessary.
Safety and Soundness: Material
Loss Review of Pacific Coast
National Bank, San Clemente,
California
OIG-12-042 (February 27, 2012)
No new recommendations.
No additional actions necessary.
9
12 CFR Parts 208, 217, and 225 Regulatory Capital Rules.
Appendix 6
Prior Office of Inspector General Recommendations to OCC
Analysis of Bank Failures Reviewed by Treasury OIG Page 51
(OIG-16-052)
Report Title
Recommendations to the Comptroller
OCC Corrective Action Taken or Planned
Safety and Soundness Reviews
of Failed National Banks Owned
by First Bank of Oak Park
Corporation
OIG-12-043 (March 1, 2012)
Re-evaluate whether OCC guidance for risk
weighting of GSE equity securities should be
consistent with the other federal banking
agencies and changed from 20 percent to 100
percent.
On October 11, 2013, OCC and the Federal
Reserve System adopted a final rule that
revises their risk-based and leverage capital
requirements for banking organizations.
Safety and Soundness: Material
Loss Review of Integra Bank,
National Association
OIG-12-050 (April 12, 2012)
No new recommendations.
No additional actions necessary.
Safety and Soundness: In-Depth
Review of the First National Bank
of Davis
OIG-12-055 (June 7, 2012)
Remind examiners of the importance of
following OCC’s guidance regarding
(1) performing reconciliations of all reports
submitted by management to ensure that the
reports are accurate and agree to the bank’s
general books, an (2) analyzing a bank’s new
products to determine the effect on credit risk.
OCC sent an all employee message on
February 11, 2013, reminding employees to
follow established OCC guidance regarding
performing reconciliations of reports received
from bank management during examinations
and to evaluate the effect of new products on
key risks, including credit risk.
Establish formal guidance to address OCC’s
response to investigations and requests for
information from law enforcement agencies. The
guidance should address, for example, when
examination procedures should be expanded
based on information provided by law
enforcement agencies as well as notification to
OCC Headquarters and OIG.
On February 7, 2014, OCC issued Policies and
Procedures Manual documents 5000-40, “OCC
Filings of Suspicious Activity Reports (SAR”
and 5000-41, “Notification Requirements to
the Treasury OIG for Examination Obstruction,
Administrative Actions, SARs, and Contacts
with Law Enforcement” providing guidance on
interaction with law enforcement agencies and
communication protocols for notifications to
OCC Headquarters and OIG.
Appendix 7
OCC Management Comments
Analysis of Bank Failures Reviewed by Treasury OIG Page 52
(OIG-16-052)
Appendix 7
OCC Management Comments
Analysis of Bank Failures Reviewed by Treasury OIG Page 53
(OIG-16-052)
Appendix 7
OCC Management Comments
Analysis of Bank Failures Reviewed by Treasury OIG Page 54
(OIG-16-052)
Appendix 8
Major Contributoers to This Report
Analysis of Bank Failures Reviewed by Treasury OIG Page 55
(OIG-16-052)
Alicia Weber, Audit Manager
John Tomasetti, Auditor-in-Charge
Kevin Guishard, Auditor
Khuyen Tran, Auditor
April Ellison, Referencer
Andrea Smith, Referencer
Appendix 9
Report Distribution
Analysis of Bank Failures Reviewed Treasury OIG Page 56
(OIG-16-052)
The Department of the Treasury
Deputy Secretary of the Treasury
Office of Strategic Planning and Performance Management
Office of the Deputy Chief Financial Officer, Risk and Control
Group
Office of the Comptroller of the Currency
Comptroller of the Currency
Liaison Officer
Office of Management and Budget
OIG Budget Examiner
Treasury OIG Website
Access Treasury OIG reports and other information online:
http://www.treasury.gov/about/organizational-structure/ig/Pages/default.aspx
Report Waste, Fraud, and Abuse
OIG Hotline for Treasury Programs and Operations – Call toll free: 1-800-359-3898
Gulf Coast Restoration Hotline – Call toll free: 1-855-584.GULF (4853)
Email: Hotline@oig.treas.gov
Submit a complaint using our online form:
https://www.treasury.gov/about/organizational-structure/ig/Pages/OigOnlineHotlineForm.aspx
