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Report Fraud, Waste, or Abuse
October 1, 2013–March 31, 2014
Section 38(k) of the FDI Act requires that the IG of the appropriate federal banking agency complete a review of the agency’s supervision of a failed institution and issue a report within six months of notification from the FDIC OIG that the projected loss to the DIF is material. Under section 38(k) of the FDI Act, a material loss to the DIF is defined as an estimated loss in excess of $150 million for the period January 1, 2012, through December 31, 2013; for all such losses occurring on or after January 1, 2014, the materiality threshold is $50 million.
The material loss review provisions of section 38(k) require that the IG do the following:
We did not conduct any material loss reviews during this reporting period.
The FDI Act, as amended by the Dodd-Frank Act, requires the IG of the appropriate federal banking agency to report, on a semiannual basis, certain information on financial institutions that incurred nonmaterial losses to the DIF and that failed during the respective six-month period.
When bank failures result in nonmaterial losses to the DIF, the IG is required to determine (1) the grounds identified by the federal banking agency or the state bank supervisor for appointing the FDIC as receiver and (2) whether the losses to the DIF present unusual circumstances that would warrant an in-depth review. Generally, the in-depth review process is the same as that for material loss reviews, but in-depth reviews are not subject to the six-month reporting deadline.
The IG must semiannually report the dates when each such review and report will be completed. If an in-depth review is not warranted, the IG is required to provide an explanation of this determination. In general, we consider a loss to the DIF to present unusual circumstances if the conditions associated with the bank’s deterioration, ultimate closure, and supervision were not addressed in any of our prior bank failure reports or involved potentially fraudulent activity.
During this reporting period, we continued our in-depth review of the failure of Waccamaw Bank (described below). There were no nonmaterial state member bank failures during this reporting period.
On June 8, 2012, the North Carolina Office of the Commissioner of Banks closed Waccamaw Bank and appointed the FDIC as receiver. According to the FDIC’s press release, as of March 31, 2012, Waccamaw Bank had approximately $533.1 million in total assets and $472.7 million in total deposits. On June 8, 2012, the FDIC estimated that the cost to the DIF from Waccamaw Bank’s closure will be $51.1 million, which did not meet the materiality threshold as defined under section 38(k) of the FDI Act.
Based on the results of its failed bank review, the OIG determined that the failure of Waccamaw Bank was due to circumstances that have been covered in past OIG reports. However, the failed bank review also identified three unusual circumstances that warranted an in-depth review of Waccamaw Bank: (1) Waccamaw Bank appears to have misinformed regulators about key aspects of an asset swap transaction that significantly changed its risk profile and financial condition; (2) Waccamaw Bank initiated a series of appeals related to the examiners’ recommended regulatory capital treatment of a transaction, which ultimately reached the highest level of appellate review by a Board Governor; and (3) there were unique circumstances surrounding the retirement of Waccamaw Bank’s former President and Chief Executive Officer (CEO). As a result, we initiated an in-depth review that focuses on these three unusual circumstances. We plan to issue our report during the next semiannual reporting period.