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FDIC Enforcement Decisions and Orders |
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FDIC denies Section 32 application to serve as director or officer of a troubled institution. Applicant had defaulted on personal loans from the institution and an affiliate; Board found this to reflect adversely on his character and integrity. Designation of the institution as "troubled" for purposes of Section 32 does not require a completed examination and final report; information obtained in a current examination is sufficient.
[.1] FDI Act Section 32"Troubled Institution"Designation
[.2] FDI Act Section 32"Troubled Institution"Notice
[.3] FDI Act Section 32Character and IntegrityLoan Defaults
In the Matter of
This proceeding arises out of an application, dated May 21, 1990 ("Application"), by Daniel R. Cartier ("Applicant" or "Cartier") submitted to the Chicago Regional Office of the Division of Supervision of the Federal Deposit Insurance Corporation ("FDIC") under section 32(a) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1831i, seeking approval to be employed as a director and as chief executive officer of the Verona Exchange Bank, Verona, Illinois ("Verona"), a troubled institution.1 The Chicago Regional Office issued a Notice of Disapproval of Notification of Addition of a Director and/or Employment of a Senior Executive Officer ("Notice of Disapproval") disapproving the Application on June 19, 1990, based on a determination that Cartier lacked the statutory prerequisites to become a senior official of Verona. On July 9, 1990, the FDIC's Division of Supervision received appeals from the Notice of Disapproval from the Applicant and Verona, both of which appeals were subsequently denied.
A. Application
On May 21, 1990, a Notification of Addition of a Director or Employment of a Senior Executive Officer from Daniel R. Cartier and Verona Exchange Bank was submitted to the FDIC Chicago Regional Office. The FDIC's Chicago Regional Director ("Regional Director") disapproved the Application on June 19, 1990, based on a review of the Applicant's competence, experience, fitness of character, and integrity under section 32(e). The Regional Director informed both Verona and the Applicant that based on the Applicant's unfavorable history of loans to Applicant by Verona and * * *, the proposed association of Mr. Cartier and Verona would not be in the best interests of the depositors of the Bank or of the public.
B. Appeal
The Applicant and Verona appealed the
C. Hearing
A hearing was held in Minneapolis, Minnesota on September 26 and 27, 1990. At the commencement of the hearing, the Applicant and Verona made an oral motion to dismiss on the grounds that the FDIC allegedly did not comply with the requirements of section 303.14 of the FDIC Rules and Regulations, 12 C.F.R. § 303.14(a)(4)(iv), in notifying Verona that it had been designated a "troubled" bank. The facts relating to the FDIC's notification of Verona are as follows.
D. The Presiding Officer's Recommended
In reaching his recommendation, the Presiding Officer focused on two issues: the adequacy of notification to the Bank of the designation of Verona as a "troubled" institution and Cartier's failure to meet the statutory prerequisites to serve as director or senior officer of Verona. The Presiding Officer concluded that the FDIC Chicago Regional Office had complied with the necessary regulatory procedures in notifying Verona that it was in a "troubled condition," and that the Division of Supervision was justified in finding that the Applicant lacked the statutory prerequisites to warrant approval of his Application.
Based upon a thorough review of the testimony, the documentary evidence, the briefs and arguments of the parties, and the Presiding Officer's Recommended Decision, the Board agrees with the Presiding Officer's findings of fact and conclusions of law. The Board, therefore, adopts the Presiding Officer's Recommended Decision.
A. Applicant's Pre-hearing Motion
The Applicant placed in the record an oral Motion to Dismiss arguing that the FDIC's denial of his Application was invalid. The motion was denied by the Presiding Officer. Specifically, the Applicant contended: (1) the FDIC's determination that the Bank was in a "troubled condition" failed to meet the statutory requirements of 12 U.S.C. § 1831(i)(a) since the FDIC's determination was not based on the completed examination report dated March 31, 1989, but rather on findings generated during the examination still in progress in March 1990; (2) the FDIC failed to comply with the requirements of 12 C.F.R. § 303.14(4)(iv) in notifying Verona it was a "troubled institution" and thus the Bank was not subject to the requirements of section 1831(i). Additionally, the Applicant contended that Verona was not actually in a "troubled condition" on March 22, 1990.
[.1] Section 32 of the FDI Act provides that one basis for the designation of a "troubled institution" is determined by the agency on the basis of the institution's "most recent report of condition or report of examination or inspection." 12 U.S.C. § 1831(i)(a). The implementing regulations at section 303.14(a)(4) of the FDIC Rules of Practice and Procedures, define "troubled condition" as any insured nonmember bank that: (i) has been assigned a composite rating by the FDIC of 4 or 5 under the Uniform Financial Institutions Rating System...; (ii) is subject to a proceeding initiated by the FDIC for termination or suspension of deposit insurance; (iii) is subject to a written agreement which requires action to improve or maintain the safety and soundness of the institution...; or (iv) is informed in writing by the regional director...based on a visitation, examination, or report of condition, that it has been designated a "troubled institution" for the purposes of § 303.14. 12 C.F.R. § 303.14(a)(4)(i)-(iv) (emphasis added).
[.2] The Applicant also contends that the FDIC lacked authority to deny his Application because it did not comply with its own rules and regulations under 12 C.F.R. § 303.14(a)(4)(iv) in that the March 22, 1990 letter did not specifically identity the "visitation, examination, or report of condition" on which Verona's troubled status determination was based. However, section 303.14(a) (4)(iv) does not require that notification to the troubled institution state whether it is a "visitation, examination, or report of condition" which forms the basis for the designation, but requires only that the regional director make his or her determination based on a "visitation, examination, or report of condition." Nor is the regional director required to specifically refer to subsection 303.14(a)(4)(iv) when informing the institution of its troubled condition.
B. Denial of the Application
The record appears to indicate that with the exception of the Applicant's unfavorable history of loan defaults with Verona and its former affiliate, * * *, Cartier has honored his loan obligations to other institutions and that he is otherwise qualified for the position sought at Verona. The Presiding Officer considered this evidence favorable to Cartier but decided, nevertheless, that the loan defaults at Verona and * * * were sufficient reasons for the FDIC to find that he did not possess the competence, experience, character, and integrity to permit him to serve at Verona.
[.3] In light of this record, the Board agrees with the Presiding Officer's analysis and his conclusion that the Applicant's failure to meet his payment obligations on the loans at Verona and * * * constitutes a sufficient basis for the FDIC to deny his application to serve as a director and chief executive officer of Verona for failure to meet the statutory requirement of competence, character, experience, or integrity.
Section 32 is one regulatory means by which the FDIC maintains and promotes the safety and soundness of insured depository institutions. Section 32 allows the FDIC to screen individuals who seek to manage the affairs of particular institutions which have been newly chartered, have recently changed control, and/or are in a troubled condition. Senior executive positions at such institutions carry with them great fiduciary responsibility to the depositors and to the public. Therefore, an individual's competence, experience, character, or integrity is evaluated in relation to the particular institution involved, the specific position in which the Applicant seeks to be employed and any special needs of that institution.
The Board of Directors of the Federal Deposit Insurance Corporation, having considered the entire record in this proceeding, hereby adopts the recommendation of the Presiding Officer to deny the appeal of Daniel R. Cartier.
Upon consideration of the record Petitioners (1) have failed to show that Federal Deposit Insurance Corporation's ("FDIC") finding that Verona Exchange Bank ("Bank") was a troubled institution or that FDIC's letter of disapproval did not meet the requirements of the statute and regulations, and (2) have failed to show that Cartier possesses the competence, experience, character and integrity to permit him to serve as director or senior executive officer of the Bank.
Pursuant to authority vested in the Executive Secretary by section 308.98 of the FDIC's rules and regulations I was designated as presiding officer by letter dated September 10, 1990, to conduct the hearing in this proceeding and to submit a recommendation to the Board of Directors of the FDIC. The hearing was held in Minneapolis, Minnesota on September 26 and 27, 1990.
Prior to September 30, 1983 Cartier was
{{9-30-91 p.A-1634.7}}part owner of Verona at which time it was purchased by * * *, of which Cartier was also part owner. The holding company also owed the * * *.
In the opening statement counsel for petitioners verbally placed in the record a motion to dismiss based on the position that FDIC did not comply with the requirements of the fourth sub-part of 12 CFR 303.14 (4)(iv); specifically, the FDIC did not give Verona notification that it had been designated a troubled bank as is required by the regulations. (Tr. 510) That motion was denied subsequent to the hearing.
The issues in the case involve a federal statute and certain FDIC regulations.
Petitioners contend that there are three reasons why FDIC's disapproval of Cartier is invalid.
Thus, there appears to be primarily two issues to be decided; (1) has FDIC complied with the intent of Congress and the regulations in its finding that Verona was a troubled bank and its subsequent notice of Verona, and if so (2) does Cartier possess the competence, experience, character and integrity to permit him to be employed and associated with Verona.
The books are replate with decisions regarding a government agency's authority and discretion in discharging its reponsibilities.
Testimony by witnesses and exhibits submitted were directed toward the issues mentioned above, whether FDIC has complied with the law in its findings and notice to Verona and whether Cartier possesses the competence, experience, character and integrity to permit him to occupy the positions sought. The FDIC presented two witnesses and Petitioners presented two witnesses in addition to Cartier.
Stanley J. Hermie testified for FDIC. Hermie is a review examiner in the Chicago Regional Office of FDIC and has been employed by FDIC for fifteen years.
Gerald R. Knudson, has been President of Verona since May 1988 and testified that Verona's earnings in 1988 were $192,000 (1.02 of assets) of which it paid out 85 to 90 percent in dividends, and in 1989 earnings were approximately $174,000 with less than 85 percent paid out. He testified the bank now has a camel rating of 3, with some portions being rated a 2; that at the examination 16.5 percent of capital was classified and as of August 31, it was down to 4.25 percent of capital. Knudson testitied that he had talked with Cartier about his loan from time to time and Cartier indicated that he did not have the funds for payment "as a result of not receiving his payments from the holding company." (TR. 241-7)
Under 12 USC 1831(i) an insured nonmember bank must notify FDIC at least 30 days before adding a director or employing a senior executive officer if the bank is in a troubled condition, as determined by FDIC on the most recent report of condition, report of examination or inspection of the bank.
As stated above 12 USC 1831(i) provides that a director or senior executive office may be disapproved if the competence, experience, character or integrity of the individual indicates that it would not be in the best interest of the depositors of the bank or of the public to permit the individual to serve. |
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Last Updated 6/6/2003 | legal@fdic.gov |
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