Summary

This report responds to a congressional request for an independent review of the events leading up to the 1992 closure of the Rushville National Bank by the Office of the Comptroller of the Currency (OCC). GAO discusses whether OCC followed its policies and procedures in its (1) net worth calculation and loan classifications, which led to Rushville's being declared insolvent; (2) decision to close the bank before implementation of the Federal Deposit Insurance Corporation Improvement Act; (3) contacts with the bank that recalled a loan to Rushville's holding company; (4) determination of civil money penalties assessed against the former Rushville chairman and directors; and (5) involvement with the proposed sale of Rushville holding company stock by Rushville's suspended chairman.

GAO noted that: (1) during its review, it found that OCC properly calculated Rushville's net worth; (2) also, GAO did not find evidence that OCC's loan classifications or insolvency determination were improper; (3) although some calculations and classifications were based to a great extent on examiner judgment, the examiners' net worth calculation and loan classifications followed OCC procedures; (4) however, GAO's review of loan classifications was made more difficult by the lack of certain documentation; (5) GAO determined that FDICIA's prompt corrective action provisions would not have allowed Rushville to remain open longer; (6) Congress enacted FDICIA to eliminate delays in the closure of problem institutions, and OCC officials told GAO that, for that reason, even if they had not had a pre-FDICIA basis to close Rushville, they would have closed the bank without delay once FDICIA was implemented; (7) in GAO's review of OCC electronic mail and related documents, it found no support for the allegation that OCC tried to close Rushville by seeking to influence the recall of a loan made by a creditor bank to Rushville's holding company; (8) OCC officials and officers of the creditor bank told GAO that OCC never attempted to influence the recall of the holding company loan; (9) officers of the creditor bank told GAO that they first sought repayment of the loan in 1990 because the Rushville bank stock that collateralized the loan was of questionable value and they doubted the Rushville chairman's capacity to repay the loan; (10) regarding the penalties assessed against Rushville directors, GAO found that OCC followed its policies and procedures; (11) however, in a number of instances in the 1990s, the penalties ultimately assessed by OCC were higher than those originally proposed by district officials; (12) while documentation was insufficient for GAO to ascertain how the OCC amounts were determined, OCC procedures allow for such penalty adjustments when circumstances warrant; (13) GAO found no evidence substantiating the Rushville directors' assertion that an OCC official told the Rushville chairman during the meeting at which he was suspended that he could not sell his stock; and (14) moreover, when OCC became aware of the misunderstanding, OCC sent a letter to the chairman stating that he could sell his stock subject to OCC approval.