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Board Report: 2014-SR-B-011 July 25, 2014

Enforcement Actions and Professional Liability Claims Against Institution-Affiliated Parties and Individuals Associated with Failed Institutions

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Offices of Inspector General

July 25, 2014



Martin J. Gruenberg, Chairman
Federal Deposit Insurance Corporation

Janet L. Yellen, Chair
Board of Governors of the Federal Reserve System

Thomas J. Curry, Comptroller of the Currency
Office of the Comptroller of the Currency


Fred W. Gibson, Jr.
Principal Deputy Inspector General
Federal Deposit Insurance Corporation

Mark Bialek
Inspector General
Board of Governors of the Federal Reserve System
and Consumer Financial Protection Bureau

Eric M. Thorson
Inspector General
Department of the Treasury

Enforcement Actions and Professional Liability Claims Against Institution-Affiliated Parties and Individuals Associated with Failed Institutions
(Report Numbers: EVAL-14-002; 2014-SR-B-011; OIG-CA-14-012)

Attached is a copy of an evaluation report that the Offices of Inspector General (OIG) recently completed concerning actions that the banking regulators (the Federal Deposit Insurance Corporation—FDIC; the Board of Governors of the Federal Reserve System—FRB; and the Office of the Comptroller of the Currency—OCC) took against individuals and entities in response to actions that harmed financial institutions. The objectives of our evaluation were to:

  1. Describe the Regulators’ processes for investigating and pursuing enforcement actions (EA) against institution-affiliated parties (IAP) associated with failed institutions;
  2. Describe the FDIC’s process for investigating and pursuing professional liability claims (PLC) against individuals and entities associated with failed institutions and its coordination with the FRB and OCC;
  3. Determine the results of the Regulators’ efforts in investigating and pursuing EAs against IAPs and the FDIC’s efforts in pursuing PLCs; and
  4. Assess key factors that may impact the pursuit of EAs and PLCs.

As discussed in our report, the Regulators have established formal processes for investigating and imposing EAs on IAPs whose actions harmed institutions, and the FDIC has done the same for investigating and pursuing PLCs.  During the 5-year period from 2008-2012, 465 institutions failed.  As of September 30, 2013, the Regulators had issued 275 EAs against individuals associated with 87 of those failed institutions, and the FDIC had completed 430 PLCs and had an additional 305 pending a final result—many pertaining to directors and officers—based on litigation or negotiation. 

The report contains seven recommendations intended to strengthen the FDIC, FRB, and OCC’s programs for pursuing EAs and the FDIC’s program for pursuing PLCs and to address factors that appeared to impact the Regulators’ ability to pursue such actions. Of the seven recommendations, two were applicable to all three agencies, one was applicable to the FRB and OCC, and four were applicable to the FDIC. Regarding EAs, we recommended that the:

  • FDIC, FRB, and OCC further examine methodologies to support EAs that permanently ban from banking, those individuals whose actions harmed financial institutions based on a willful or continuing disregard for the safety or soundness of the institutions;
  • FDIC, FRB, and OCC address differences in how they notify each other when initiating EAs;
  • FDIC consider the use of cease and desist orders against individuals as an additional enforcement tool to address safety and soundness issues; and
  • FDIC issue written guidance on the issuance and publication of letters to individuals who were convicted of certain crimes.

Regarding PLCs, we recommended that the:

  • FDIC research ways to make institutions more aware of, and mitigate the impact of, exclusions in financial institutions’ insurance policies that prevent or attempt to prevent the FDIC, as Receiver, from recovering on PLCs;
  • OCC and FRB inform their regulated institutions about the risks related to insurance policy exclusions;
  • FDIC provide more institution-specific information about PLC expenses and recoveries to members of its Board of Directors.

Comments from your respective agencies on a draft of this report were responsive to the recommendations and adequately described planned actions to be taken.

If you have questions concerning this report or would like to schedule a meeting to further discuss our evaluation results, please contact E. Marshall Gentry, FDIC OIG, at (703) 562-6378; Melissa Heist, FRB OIG, at (202) 973-5024; or Marla A. Freedman, Department of the Treasury OIG, at (202) 927-5400. Thank you for your assistance with this evaluation.