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Board Report: 2018-SR-B-007 March 19, 2018

Review of the Failure of Allied Bank

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After more than 100 years in business, Arkansas-based Allied Bank failed in 2016, resulting in an estimated $6.9 million loss to the Deposit Insurance Fund. In accordance with the Dodd-Frank Act, we conducted an in-depth review of the bank's failure.

Allied Bank failed because its corporate governance weaknesses allowed management officials to dominate the bank's affairs and allegedly engage in insider abuse. In addition, management failed to establish adequate credit risk-management practices, resulting in asset quality deterioration that eventually depleted the bank's capital. While the Federal Reserve Bank of St. Louis took decisive supervisory action to address Allied Bank's weaknesses, it could have also recommended that the Board report suspicious activity to law enforcement when the Reserve Bank first identified signs of insider abuse.

Our report contains recommendations designed to improve supervisory processes and to enhance communication between the Board's Legal Division and the Reserve Banks.