FDIC Slaps 34 Banks with Penalties, Orders

The ""FDIC"":http://www.fdic.gov/ went after 34 banks for violations of federal law and agency requirements over July, slapping nearly 20 with civil fines, notifying some to correct recent decisions, and barring directors with two institutions to cease their involvement in executive decisions over allegations of personal and fiduciary misconduct. The federal agency released the information Friday.

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According to a ""statement"":http://www.fdic.gov/news/news/press/2011/pr11143.html, the FDIC moved forward on 53 cases, issuing 19 civil money fines, 11 consent orders, and two orders that prohibited directors with federally insured institutions from making any further executive and financial institutions.

The FDIC also sent directives to banks requiring prompt corrective action and reported one instance of a bank voluntarily terminating its insurance agreement.

""We enter into enforcement actions against banks as a supervisory tool at our disposal in order to help banks enter into certain aspects of their decisions,"" says David Barr, a spokesperson with the FDIC, adding that ""it is common to see the number of enforcement decisions increase during down economic times, and then the number of enforcement decisions decrease during good economic times.""

He says that FDIC examiners were responsible for the bank investigations and recommendations for action.

""We work closely with the banks before we issue these,"" he explains. ""We like to get their sign-on so it becomes a collaborative effort as opposed to an adversarial effort.""

Barr says that most ""banks consent and agree to these orders, and we work closely with them to monitor their progress with the necessary order.""

According to statements, the FDIC signed off on prohibitions after finding material evidence that two executives acted in bad faith and poor judgment.

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Evelyn O'Niell Rosado and Lyle Spaulding, executives with San Juan-based ""Banco Santander"":http://www.santander.com/csgs/Satellite?pagename=SANCorporativo/GSDistribuidora/SC_Index and Sterling-based ""Freedom Bank"":http://freedombankwv.com/, respectively, violated the law in a series of decisions.

Without offering many details, the statements said that Rosado engaged in unsound banking practices, resulting in unspecified financial loss for her institution, while Spaulding tampered with his fiduciary duties by falling short in personal honesty.

The majority of institutions felt the sting of civil money fines for various reasons. None of the banks admit fault or wrongdoing by paying the fines.

Los Angeles-based ""Cathay Bank"":https://www.cathaybank.com/selectRegion.asp?sname=Index.asp faced the most heat, receiving a notice to pay out $17,710 for violating provisions related to the Flood Disaster Protection Act.

Other banks in hot water with the FDIC include the Altoona-based Exchange ""Bank of Alabama"":http://www.bing.com/search?q=exchange+bank+of+alabama&FORM=HPNTDF&pc=HPNTDF&src=IE-SearchBox, which will now write $9,460 in checks to the federal agency, and the Millersburg-based ""Mid Penn Bank"":https://www.midpennbank.com/, which owes $11,300 in fines.

The agency found the latter culpable for failing to obtain insurance under the Flood Act for 34 borrowers, while the former scrimped on flood insurance for nine loans, failed to adequately insure 10 borrowers, and neglected to notify borrowers that their properties sat in flood hazard zones.

Commenting on the flood insurance-related violations, Barr says that supervision related to the matter has ""really been on the rise since [Hurricane] Katrina. If you take a look at what was going on after Katrina, a lot of institutions took losses because flood insurance lapsed or wasn't required at the time that the mortgage was taken out.""

The list of civil fines and penalties, corrective actions, and other orders came before a weekend in which no banks failed ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô the first time since late June and early July.

""The FDIC has been saying for awhile that 2010 would be the peak year for bank failures,"" Barr says. ""We expect fewer in 2011 and going forward. I think it's a trend we're going to see going forward.""

He chalks up the fewer bank failures to ""improvements in the banking industry"" and general economy.

""Banks have made a concerted effort to clean up their balance sheets,"" he says. ""Banks are becoming more profitable. And with a profit, even if they're not in the best financial condition and they have problem loans or assets, they're at least making money that they can continue to operate and meet their obligations.""