Severe enforcement actions issued to US banks nearly double QOQ in Q3

US banking regulators executed 11 severe enforcement actions in the third quarter, almost doubling the second-quarter total.

Twenty-two severe enforcement actions have been issued to banks year to date as of Nov. 3 and 117 since 2020, according to S&P Global Market Intelligence data. The sole severe enforcement action executed in the fourth quarter so far is the Federal Reserve's order against Metropolitan Commercial Bank over alleged violations related to the bank's issuance of prepaid card accounts with a former third-party program manager.

Under the Oct. 16 order to cease and desist and order of assessment of a civil money penalty, the Metropolitan Bank Holding Corp. subsidiary will pay a civil money penalty of about $14.5 million.

S&P Global Market Intelligence defines severe enforcement actions as cease and desist orders, prompt corrective action directives, and formal agreements/consent orders handed to a bank or thrift by a federal regulator. This analysis does not include severe enforcement actions issued to holding companies or credit unions.

Regulatory websites may refer to certain cease and desist orders issued by federal regulators as consent agreements. However, cease and desist and consent orders are derived from the same section of law 12 U.S.C. 1818(b) and have the same structure, articulating both the areas of concern and the corrective actions. To maintain consistency with previous years, this analysis refers to these actions as cease and desist orders.

Q3 severe enforcement actions

One of the banks that were handed out a severe enforcement action during the third quarter was Sac City, Iowa-based Citizens Bank, which failed on Nov. 3. Iowa Trust & Savings Bank assumed all of the deposits and purchased essentially all assets of Citizens Bank.

Under an Aug. 2 consent order issued by the Federal Deposit Insurance Corp., Citizens Bank's board was required to, among other things, engage an independent third-party loan consultant that will have full authority and discretion to administer and service the bank's commercial trucking loan portfolio.

On Sept. 25, Discover Bank received a consent order from the FDIC, which required the bank to improve its consumer compliance management system and related corporate governance and enterprise risk management practices.

The FDIC also issued a consent order with Sandy, Utah-based WEX Bank on Sept. 20 after determining that the bank engaged in unsafe or unsound banking practices, deceptive acts and practices in or affecting commerce by charging certain higher fees than it disclosed, violations of the Equal Credit Opportunity Act and other violations.

The remaining severe enforcement actions executed by the FDIC in the third quarter are consent orders with each of Citizens Bank & Trust Co. of Vivian Louisiana, Johns Creek, Ga.-based Loyal Trust Bank, Woodland, Ga.-based Talbot State Bank, England, Ark.-based Bank of England and Sioux Falls, SD-based One American Bank.

– Access an Excel file containing every bank or thrift operating under a severe enforcement action issued since 2010. – Access severe enforcement action issuance data under the "Industries" tab at the top of the S&P Capital IQ Pro website.

The Fed issued two cease and desist orders in the quarter, one to Lenexa, Kan.-based Small Business Bank on Sept. 1 over various deficiencies. The other order was handed out to Washington-based Farmington State Bank on July 18 over the bank's alleged violation of the limitations imposed on it when its application to become a member of the Federal Reserve System was approved.

The Office of the Comptroller of the Currency executed only one severe enforcement action in the third quarter: a July 11 written agreement with Salisbury, Conn.-based National Iron Bank over "unsafe or unsound" practices. Such practices at the bank include those related to capital and strategic planning, concentrations risk management, credit underwriting and administration and Bank Secrecy Act/Anti-Money Laundering risk management, among others.