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Board Report: FRB OIG 2011-05 September 30, 2011
The OIGs of the Board, the FDIC, and the Treasury conducted a review of the prompt regulatory action (PRA) provisions of the Federal Deposit Insurance Act (FDI Act). The PRA provisions of the FDI Act (section 38, Prompt Corrective Action (PCA), and section 39, standards for safety and soundness) require federal financial regulators to institute a system of regulatory actions when an institution fails to meet minimum capital levels or certain safety and soundness standards.
These provisions were intended to increase the likelihood that regulators would respond promptly and forcefully to minimize losses to the Deposit Insurance Fund (DIF) when federally insured banks fail. Our work focused on the following objectives:
We found that PRA provisions were appropriately implemented and helped strengthen oversight to a degree. More specifically, we found that
To improve the effectiveness of the PRA framework and to meet the section 38 and 39 goals of identifying problems early and minimizing losses to the DIF, we recommended that the FDIC, the Board, and the OCC agency heads review the matters for consideration presented in this report and work through the FSOC to determine whether the PRA legislation or implementing regulations should be modified. The matters for consideration were (1) develop specific criteria and corresponding enforcement actions for non-capital factors, (2) increase the minimum PCA capital levels, and (3) continue to refine the deposit insurance system for banks with assets under $10 billion to assess greater premiums commensurate with risk-taking.
Each of the agency responses to our draft report and the identified planned actions addressed the intent of the recommendation. The Board's written response concurred with the general findings in the report and noted that the Board