Upload
buddy-richardson
View
218
Download
1
Tags:
Embed Size (px)
Citation preview
Safe & Sound Banking - Stanford CEE 244A
1
Safe and Sound Banking
Teveia R. BarnesCommissionerState of California Department of Financial Institutions
Sustainable Banking SeminarStanford University April 3, 2013
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
2
DFI as Prudential Regulator
Ensure Safe and Sound Banking
Promote public confidence in the health of the regulated institutions
Benefits of a healthy financial services system
Implement policy by administering the law
Managing the chartering and regulatory process
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
3
Changes Among State Banks2012
# $
Thousands
State Banks & Total Assets as of 1/1/12 186 271,593,744 # Failed 0 0 # Merged out of business (9) (1,890,267) # Converted to national charter 0 0 # Ceased doing business (1) (25,902) # Opened 0 0 # Converted to state charter 2 1,173,470 State banks that acquired other banks 2 33,066 State banks that did not acquire other banks 174 19,447,297
State Banks & Total Assets as of 12/31/12 178 290,331,408 Net change: (8) 18,737,664
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
4
Changes Among State Banks2012
State Banks & Total Assets as of 1/1/12 # Failed # Merged out of business # Converted to national charter # Ceased doing business # Opened # Converted to state charter State banks that acquired other banks State banks that did not acquire other banks
Changes in State Banks (# of banks)
State Banks & Total Assets as of 1/1/12 # Failed # Merged out of business # Converted to national charter # Ceased doing business # Opened # Converted to state charter
Changes in State Bank Assets ($ Thou-sands)
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
5
Changes Among State Banks 2005 – 2012
#$
Thousands
State Banks & Total Assets as of 1/1/05 189 172,470,243 # Failed (23) (33,137,711) # Merged out of business (63) (24,766,060) # Converted to national charter (2) (4,456,770) # Ceased doing business (4) (7,808,923) # Opened 71 57,649,244 # Converted to state charter 10 16,979,061 State banks that acquired other banks 23 69,909,822 State banks that did not acquire other banks 107 43,492,502 State Banks & Total Assets as of 12/31/12 178 290,331,408 Net change (11) 117,861,165
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
6
Changes Among State Banks2005 - 2012
State Banks & Total Assets as of 1/1/05 # Failed # Merged out of business # Converted to national charter # Ceased doing business # Opened # Converted to state charter State banks that acquired other banks State banks that did not acquire other banks
Changes in State Banks (# of banks)
State Banks & Total Assets as of 1/1/05 # Failed # Merged out of business # Converted to national charter # Ceased doing business # Opened # Converted to state charter
Changes in State Bank Assets ($ Thousands)
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
7
Regulation Encompass
Granting of licenses to conduct banking business in the State
Approval of bank mergers, acquisitions, consolidations, changes in articles and bylaws and the sale of securities
Conducting periodic examinations
Review and analysis of periodic reports
Issuance and enforcement of supervisory and other regulatory actions
Rendering counsel and advice on banking issues and/or problems
Closure and liquidation
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
8
Examination & Supervision of Banks
Bank examination is the foundation of bank supervision
Bank supervision Evaluation of the abilities of bank management Supervision used to strengthen or replace management
Management demonstrates the inability to effectively direct the activities of the bank or
Continued viability of the bank is threatened
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
9
Bank Examinations
Findings the field examination, DFI is in a position to determine whether the bank is being operated in a
safe and sound manner, to prescribe necessary corrective actions, and to formulate specific supervisory actions for the bank,
if needed.
The extent of the corrective actions required or supervisory advice given varies from bank to bank.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
10
CAMELS
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
11
CAMELS RATINGS
The specific areas of a bank that are evaluated include: Capital Adequacy Asset Quality Management Earnings Liquidity and Funds Management Sensitivity to Market Risk
Each of the components is rated on a scale of "1" through "5" in ascending order of performance deficiency. A rating of "1" represents the highest and "5" the lowest and most critically deficient level of operating performance.
Component/Composite rating: 232212/2
CAMEL RATINGS OF A BANK ARE CONFIDENTIAL
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
12
Bank RatingsCAMELS 1 Composite
COMPOSITE 1 Sound institutions in almost every respect Any critical findings are a minor in nature and can be
handled in a routine manner. These banks are resistant to external economic and
financial disturbances Capable of withstanding the vagaries of business conditions Rating "1" indicates strong performance. It is the highest
rating and is indicative of performance that is significantly higher than average
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
13
Bank RatingsCAMELS 2 Composite
COMPOSITE 2 Fundamentally sound institutions but may reflect modest
weakness correctable in the normal course of business. Stable and also able to withstand business fluctuations quite
well; however, areas of weakness could develop into conditions of greater concern.
Rating "2" reflects satisfactory performance. Performance that is average or above; it includes performance
that adequately provides for the safe and sound operation of the bank.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
14
Bank RatingsCAMELS 3 Composite COMPOSITE 3
Combination of weaknesses ranging from moderately severe to unsatisfactory.
Only nominally resistant to the onset of adverse business conditions and could easily deteriorate if concerted action is not effective in correcting the areas of weakness.
Vulnerable and require special supervisory attention. Rating "3" represents performance that is flawed to some
degree; as such it is considered fair.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
15
Bank RatingsCAMELS 4 Composite
COMPOSITE 4 Immoderate volume of asset weaknesses, or a
combination of other conditions that are unsatisfactory. Unless prompt corrective action is taken, the bank could
reasonably develop into a situation that could impair future viability.
A potential for failure is present. Banks in this category require close supervisory attention and financial surveillance
Rating "4" refers to marginal performance and is significantly below average; if left unchecked, such performance could threaten the viability of the institution.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
16
Bank RatingsCAMELS 5 Composite
COMPOSITE 5 Volume and character of weaknesses are such as to
require urgent aid from the shareholders or other sources Require immediate corrective action and constant
supervisory attention. The probability of failure is high for these banks
Rating "5" is considered unsatisfactory. It is the lowest rating and is indicative that performance is critically deficient and in need of immediate remedial attention.
Such performance by itself, or in combination with other weaknesses, threaten the viability of the institution.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
17
Safe and Sound Banking
Banks that are operated in a safe and sound manner, have management that exhibit a clear understanding of or has delineated the following: mission, vision, and values; impact of the environment on the organization; culture; strengths, weaknesses, opportunities, and threats; goals to be accomplished in the future; and how those goals will be reached through strategies,
objectives, responsibilities and time-lines.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
18
Safe and Sound Banking
With an understanding of the environment the institution is operating in, management may then develop: the products and services the bank is willing to provide; an organizational design and the roles that are needed by the
organization; a risk management framework supported by strong policies and
procedures; performance goals; and the resources needed to reach those goals
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
Examination Trends
19
1 2 3 4 5none
Declining
Stable
Improving
5 0 0 1 1 4
1
0
0
0 25 29
0
Note: 2 institutions have not yet been assigned a rating
0
CURRENT RATING
1 0 0 0
1 0 0 00
2
3 0
00
PR
IOR
RA
TIN
G 4 0 0 6 15
92 1
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
20
Enforcement Actions
Board Resolutions Voluntary representation by the bank board to take
specific future actions to improve bank’s condition
Memorandum of Understanding (MOU) Lowest level of enforcement action Two party informal agreement between the bank and the
regulator, usually implemented when the bank’s condition has fallen to less than satisfactory.
This agreement defines what specific steps, and when they will be taken.
This action may be “joint” with other regulators.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
21
Enforcement Actions
Regulatory Agreements (Written Agreement) Contract between the bank and the Commissioner. Any breach on the part of the bank may result in a Cease
& Desist Order, and/or allow the Commissioner to enforce the breached term.
This action may be “joint” with other regulators.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
22
Enforcement Actions
Cease & Desist Orders (C&D) or Consent Orders C&D Order may be a unilateral action of the
Commissioner, or the final order may be issued with the written consent of the respondent bank.
C&D Orders set forth goals, which must be achieved in a short time frame.
Suspension or Removal of Officers, Directors, Employees May provide for an immediate removal order under
certain specific circumstances.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
23
Civil Money Penalties (CMP)
DFI has authority to impose civil money penalties against banks for acts that violate certain provisions of the Financial Code.
The penalty is based on a three tier system and penalty amount subject to specific findings and certain conduct standards.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
24
Enforcement Actions in 2012
24 state chartered banks that were the subject of enforcement actions: 6 Cease and Desist orders 3 Board Resolutions 15 Memorandums of Understanding
34 state chartered banks enforcement actions were lifted: 12 Cease and Desist Orders 4 Board Resolutions 18 Memorandums of Understanding.
April 3, 2013
Safe & Sound Banking - Stanford CEE 244A
25
Enforcement Actions in 2012
Cease & Desist Orders Board Resolutions Memo of Understanding0
2
4
6
8
10
12
14
16
18
20
Issued Lifted
April 3, 2013