§ 1831o. Prompt corrective action
(a)
Resolving problems to protect Deposit Insurance Fund
(1)
Purpose
The purpose of this section is to resolve the problems of insured depository institutions at the least possible long-term loss to the Deposit Insurance Fund.
(2)
Prompt corrective action required
Each appropriate Federal banking agency and the Corporation (acting in the Corporation’s capacity as the insurer of depository institutions under this chapter) shall carry out the purpose of this section by taking prompt corrective action to resolve the problems of insured depository institutions.
(b)
Definitions
For purposes of this section:
(1)
Capital categories
(A)
Well capitalized
An insured depository institution is “well capitalized” if it significantly exceeds the required minimum level for each relevant capital measure.
(B)
Adequately capitalized
An insured depository institution is “adequately capitalized” if it meets the required minimum level for each relevant capital measure.
(C)
Undercapitalized
An insured depository institution is “undercapitalized” if it fails to meet the required minimum level for any relevant capital measure.
(2)
Other definitions
(A)
Average
(i)
In general
The “average” of an accounting item (such as total assets or tangible equity) during a given period means the sum of that item at the close of business on each business day during that period divided by the total number of business days in that period.
(ii)
Agency may permit weekly averaging for certain institutions
In the case of insured depository institutions that have total assets of less than $300,000,000 and normally file reports of condition reflecting weekly (rather than daily) averages of accounting items, the appropriate Federal banking agency may provide that the “average” of an accounting item during a given period means the sum of that item at the close of business on the relevant business day each week during that period divided by the total number of weeks in that period.
(B)
Capital distribution
The term “capital distribution” means—
(i)
a distribution of cash or other property by any insured depository institution or company to its owners made on account of that ownership, but not including—
(C)
Capital restoration plan
The term “capital restoration plan” means a plan submitted under subsection (e)(2) of this section.
(E)
Compensation
The term “compensation” includes any payment of money or provision of any other thing of value in consideration of employment.
(F)
Relevant capital measure
The term “relevant capital measure” means the measures described in subsection (c) of this section.
(G)
Required minimum level
The term “required minimum level” means, with respect to each relevant capital measure, the minimum acceptable capital level specified by the appropriate Federal banking agency by regulation.
(H)
Senior executive officer
The term “senior executive officer” has the same meaning as the term “executive officer” in section
375b of this title.
(c)
Capital standards
(1)
Relevant capital measures
(A)
In general
Except as provided in subparagraph (B)(ii), the capital standards prescribed by each appropriate Federal banking agency shall include—
(2)
Capital categories generally
Each appropriate Federal banking agency shall, by regulation, specify for each relevant capital measure the levels at which an insured depository institution is well capitalized, adequately capitalized, undercapitalized, and significantly undercapitalized.
(3)
Critical capital
(A)
Agency to specify level
(d)
Provisions applicable to all institutions
(1)
Capital distributions restricted
(A)
In general
An insured depository institution shall make no capital distribution if, after making the distribution, the institution would be undercapitalized.
(B)
Exception
Notwithstanding subparagraph (A), the appropriate Federal banking agency may permit, after consultation with the Corporation, an insured depository institution to repurchase, redeem, retire, or otherwise acquire shares or ownership interests if the repurchase, redemption, retirement, or other acquisition—
(e)
Provisions applicable to undercapitalized institutions
(1)
Monitoring required
Each appropriate Federal banking agency shall—
(2)
Capital restoration plan required
(A)
In general
Any undercapitalized insured depository institution shall submit an acceptable capital restoration plan to the appropriate Federal banking agency within the time allowed by the agency under subparagraph (D).
(B)
Contents of plan
The capital restoration plan shall—
(C)
Criteria for accepting plan
The appropriate Federal banking agency shall not accept a capital restoration plan unless the agency determines that—
(i)
the plan—
(D)
Deadlines for submission and review of plans
The appropriate Federal banking agency shall by regulation establish deadlines that—
(i)
provide insured depository institutions with reasonable time to submit capital restoration plans, and generally require an institution to submit a plan not later than 45 days after the institution becomes undercapitalized;
(E)
Guarantee liability limited
(i)
In general
The aggregate liability under subparagraph (C)(ii) of all companies having control of an insured depository institution shall be the lesser of—
(ii)
Certain affiliates not affected
This paragraph may not be construed as—
(I)
requiring any company not having control of an undercapitalized insured depository institution to guarantee, or otherwise be liable on, a capital restoration plan;
(3)
Asset growth restricted
An undercapitalized insured depository institution shall not permit its average total assets during any calendar quarter to exceed its average total assets during the preceding calendar quarter unless—
(4)
Prior approval required for acquisitions, branching, and new lines of business
An undercapitalized insured depository institution shall not, directly or indirectly, acquire any interest in any company or insured depository institution, establish or acquire any additional branch office, or engage in any new line of business unless—
(5)
Discretionary safeguards
The appropriate Federal banking agency may, with respect to any undercapitalized insured depository institution, take actions described in any subparagraph of subsection (f)(2) of this section if the agency determines that those actions are necessary to carry out the purpose of this section.
(f)
Provisions applicable to significantly undercapitalized institutions and undercapitalized institutions that fail to submit and implement capital restoration plans
(2)
Specific actions authorized
The appropriate Federal banking agency shall carry out this section by taking 1 or more of the following actions:
(A)
Requiring recapitalization
Doing 1 or more of the following:
(B)
Restricting transactions with affiliates
(i)
Requiring the institution to comply with section
371c of this title as if subsection (d)(1) of that section (exempting transactions with certain affiliated institutions) did not apply.
(C)
Restricting interest rates paid
(D)
Restricting asset growth
Restricting the institution’s asset growth more stringently than subsection (e)(3) of this section, or requiring the institution to reduce its total assets.
(E)
Restricting activities
Requiring the institution or any of its subsidiaries to alter, reduce, or terminate any activity that the agency determines poses excessive risk to the institution.
(F)
Improving management
Doing 1 or more of the following:
(ii)
Dismissing directors or senior executive officers
Requiring the institution to dismiss from office any director or senior executive officer who had held office for more than 180 days immediately before the institution became undercapitalized. Dismissal under this clause shall not be construed to be a removal under section
1818 of this title.
(G)
Prohibiting deposits from correspondent banks
Prohibiting the acceptance by the institution of deposits from correspondent depository institutions, including renewals and rollovers of prior deposits.
(H)
Requiring prior approval for capital distributions by bank holding company
Prohibiting any bank holding company having control of the insured depository institution from making any capital distribution without the prior approval of the Board of Governors of the Federal Reserve System.
(I)
Requiring divestiture
Doing one or more of the following:
(i)
Divestiture by the institution
Requiring the institution to divest itself of or liquidate any subsidiary if the agency determines that the subsidiary is in danger of becoming insolvent and poses a significant risk to the institution, or is likely to cause a significant dissipation of the institution’s assets or earnings.
(ii)
Divestiture by parent company of nondepository affiliate
Requiring any company having control of the institution to divest itself of or liquidate any affiliate other than an insured depository institution if the appropriate Federal banking agency for that company determines that the affiliate is in danger of becoming insolvent and poses a significant risk to the institution, or is likely to cause a significant dissipation of the institution’s assets or earnings.
(3)
Presumption in favor of certain actions
In complying with paragraph (2), the agency shall take the following actions, unless the agency determines that the actions would not further the purpose of this section:
(A)
The action described in clause (i) or (iii) of paragraph (2)(A) (relating to requiring the sale of shares or obligations, or requiring the institution to be acquired by or combine with another institution).
(4)
Senior executive officers’ compensation restricted
(5)
Discretion to impose certain additional restrictions
The agency may impose 1 or more of the restrictions prescribed by regulation under subsection (i) of this section if the agency determines that those restrictions are necessary to carry out the purpose of this section.
(6)
Consultation with other regulators
Before the agency or Corporation makes a determination under paragraph (2)(I) with respect to an affiliate that is a broker, dealer, government securities broker, government securities dealer, investment company, or investment adviser, the agency or Corporation shall consult with the Securities and Exchange Commission and, in the case of any other affiliate which is subject to any financial responsibility or capital requirement, any other appropriate regulator of such affiliate with respect to the proposed determination of the agency or the Corporation and actions pursuant to such determination.
(g)
More stringent treatment based on other supervisory criteria
(1)
In general
If the appropriate Federal banking agency determines (after notice and an opportunity for hearing) that an insured depository institution is in an unsafe or unsound condition or, pursuant to section
1818
(b)(8) of this title, deems the institution to be engaging in an unsafe or unsound practice, the agency may—
(h)
Provisions applicable to critically undercapitalized institutions
(1)
Activities restricted
Any critically undercapitalized insured depository institution shall comply with restrictions prescribed by the Corporation under subsection (i) of this section.
(2)
Payments on subordinated debt prohibited
(A)
In general
A critically undercapitalized insured depository institution shall not, beginning 60 days after becoming critically undercapitalized, make any payment of principal or interest on the institution’s subordinated debt.
(B)
Exceptions
The Corporation may make exceptions to subparagraph (A) if—
(3)
Conservatorship, receivership, or other action required
(A)
In general
The appropriate Federal banking agency shall, not later than 90 days after an insured depository institution becomes critically undercapitalized—
(B)
Periodic redeterminations required
Any determination by an appropriate Federal banking agency under subparagraph (A)(ii) to take any action with respect to an insured depository institution in lieu of appointing a conservator or receiver shall cease to be effective not later than the end of the 90-day period beginning on the date that the determination is made and a conservator or receiver shall be appointed for that institution under subparagraph (A)(i) unless the agency makes a new determination under subparagraph (A)(ii) at the end of the effective period of the prior determination.
(C)
Appointment of receiver required if other action fails to restore capital
(i)
In general
Notwithstanding subparagraphs (A) and (B), the appropriate Federal banking agency shall appoint a receiver for the insured depository institution if the institution is critically undercapitalized on average during the calendar quarter beginning 270 days after the date on which the institution became critically undercapitalized.
(ii)
Exception
Notwithstanding clause (i), the appropriate Federal banking agency may continue to take such other action as the agency determines to be appropriate in lieu of such appointment if—
(I)
the agency determines, with the concurrence of the Corporation, that (aa) the insured depository institution has positive net worth, (bb) the insured depository institution has been in substantial compliance with an approved capital restoration plan which requires consistent improvement in the institution’s capital since the date of the approval of the plan, (cc) the insured depository institution is profitable or has an upward trend in earnings the agency projects as sustainable, and (dd) the insured depository institution is reducing the ratio of nonperforming loans to total loans; and
(i)
Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall, by regulation or order—
(2)
at a minimum, prohibit any such institution from doing any of the following without the Corporation’s prior written approval:
(A)
Entering into any material transaction other than in the usual course of business, including any investment, expansion, acquisition, sale of assets, or other similar action with respect to which the depository institution is required to provide notice to the appropriate Federal banking agency.
(j)
Certain Government-controlled institutions exempted
Subsections (e) through (i) of this section (other than paragraph (3) of subsection (e) of this section) shall not apply—
(k)
Review required when Deposit Insurance Fund incurs material loss
(1)
In general
If the Deposit Insurance Fund incurs a material loss with respect to an insured depository institution on or after July 1, 1993, the inspector general of the appropriate Federal banking agency shall—
(A)
make a written report to that agency reviewing the agency’s supervision of the institution (including the agency’s implementation of this section), which shall—
(2)
Material loss incurred
For purposes of this subsection:
(A)
Loss incurred
The Deposit Insurance Fund incurs a loss with respect to an insured depository institution—
(i)
if the Corporation provides any assistance under section
1823
(c) of this title with respect to that institution; and—
(ii)
if the Corporation is appointed receiver of the institution, and it is or becomes apparent that the present value of the outlays of the Deposit Insurance Fund with respect to that institution will exceed the present value of receivership dividends or other payments on the claims held by the Corporation.
(3)
Deadline for report
The inspector general of the appropriate Federal banking agency shall comply with paragraph (1) expeditiously, and in any event (except with respect to paragraph (1)(B)(iv)) as follows:
(A)
If the institution is described in paragraph (2)(A)(i), during the 6-month period beginning on the earlier of—
(B)
If the institution is described in paragraph (2)(A)(ii), during the 6-month period beginning on the date on which it becomes apparent that the present value of the outlays of the Deposit Insurance Fund with respect to that institution will exceed the present value of receivership dividends or other payments on the claims held by the Corporation.
(4)
Public disclosure required
(5)
GAO review
The Comptroller General of the United States shall, under such conditions as the Comptroller General determines to be appropriate, review reports made under paragraph (1) and recommend improvements in the supervision of insured depository institutions (including the implementation of this section).
(6)
Transition rule
During the period beginning on July 1, 1993, and ending on June 30, 1997, a loss incurred by the Corporation with respect to an insured depository institution—
(A)
with respect to which the Corporation initiates assistance under section
1823
(c) of this title during the period in question, or
(B)
for which the Corporation was appointed receiver during the period in question,
is material for purposes of this subsection only if that loss exceeds the greater of $25,000,000 or the applicable percentage of the institution’s total assets at that time, set forth in the following table:
The applicable
For the following period:
percentage is:
July 1, 1993–June 30, 1994
7 percent
July 1, 1994–June 30, 1995
5 percent
July 1, 1995–June 30, 1996
4 percent
July 1, 1996–June 30, 1997
3 percent.
(l)
Implementation
(m)
Other authority not affected
This section does not limit any authority of an appropriate Federal banking agency, the Corporation, or a State to take action in addition to (but not in derogation of) that required under this section.
(n)
Administrative review of dismissal orders
(1)
Timely petition required
A director or senior executive officer dismissed pursuant to an order under subsection (f)(2)(F)(ii) of this section may obtain review of that order by filing a written petition for reinstatement with the appropriate Federal banking agency not later than 10 days after receiving notice of the dismissal.