Large and complex banks with “persistent weaknesses” could face “additional and increasingly severe” sanctions, under the Office of the Comptroller of the Currency’s (OCC) newly revised policies and procedures manual on bank enforcement actions.
The OCC’s revised policies and procedures manual on bank enforcement actions, issued May 25, includes a newly added “Appendix C: Actions Against Banks with Persistent Weaknesses,” which the OCC said in its press release “provides greater transparency and clarity about how the OCC determines if a bank has persistent weaknesses and the possible additional actions the agency may take to address them.”
In the new appendix, the OCC said “persistent weaknesses” may include:
- Composite or management component ratings that are three or worse, or three or more weak or insufficient quality of risk management assessments, for more than three years;
- Failure by the bank to adopt, implement, and adhere to all the corrective actions required by a formal enforcement action in a timely manner; or
- Multiple enforcement actions against the bank executed or outstanding during a three-year period.
Among the potential actions the OCC could take against larger and more complex banks that exhibit persistent weaknesses could include one or more of the following:
- A requirement for the board to oversee the development and implementation of an enterprise[1]wide action plan to promptly resolve the bank’s persistent weaknesses, including to improve composite or component ratings or quality of risk management assessments;
- Restrictions on the bank’s growth (overall or in discrete areas), business activities, or payment of dividends;
- Requirements for the bank to take affirmative actions, including making or increasing investments targeted to aspects of its operations or acquiring or holding additional capital or liquidity.
Extends to Third-Party Affiliates
The OCC policy further states that institution-affiliated parties “who have engaged in unsafe or unsound practices, violations, or breaches of fiduciary duty, including parties who caused or contributed to the bank’s persistent weaknesses,” could also face an enforcement action.
“Should a bank fail to correct its persistent weaknesses in response to prior enforcement actions or other measures…the OCC will consider further action to require the bank to remediate the weaknesses,” the OCC said in the revised policy. “Such action could require the bank to simplify or reduce its operations, including that the bank reduce its asset size, divest subsidiaries or business lines, or exit from one or more markets of operation.”
Acting Comptroller of the Currency Michael Hsu said in a statement the revised policy “promotes strong management by making clear that a bank’s inability to correct persistent weaknesses will result in proportionate, fair, and appropriate consequences, including growth restrictions and divestitures when warranted.”
“These guardrails are especially important today, as banks grow to better serve their communities, improve their competitiveness, and achieve economies of scale,” Hsu added. “Well-managed banks provide invaluable support to our economy, and this revised policy promotes this result.” 
PHOTO BY MINH NGUYEN, LICENSED UNDER CC BY-SA 4.0
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.