Magazine article American Banker

Independent Banks to Sue FDIC over Disclosure

Magazine article American Banker

Independent Banks to Sue FDIC over Disclosure

Article excerpt

WASHINGTON -- The Independent Bankers Association of America on Monday announced plans to sue the Federal Deposit Insurance Corp. over its new policy of disclosing enforcement actions against banks.

Arguing that disclosures of enforcement proceedings may touch off depositor runs, small and medium-sized banks represented by the IBAA have sharply criticized the rule, which was adopted in June. The rule -- part of an overall effort by FDIC chairman William Isaac to instill more market discipline in the industry --goes into effect Jan. 1, 1986.

"The average depositor will not know what a formal enforcement action is," said IBAA president B.F. Banklund, president of Bartonville Bank in Bartonville, Ill. "Rather he is likely to draw the mistaken conclusion: 'My bank is in trouble; I had better pull my money out.'"

Under the rule, the agency will routinely release final enforcement orders leveled against institutions for such regulatory violations as inadequate capital levels, abusive insider dealings, use of brokered deposits to engage in speculative loans, and inadequate management.

While the IBAA suit has not yet been filed, a written statement released by the trade association Monday indicated that it will argue that the rule is discriminatory because it applies only to one segment of the financial industry --state-chartered, nonmember banks that are regulated by the FDIC.

The FDIC is the first agency to adopt such a policy. The Office of the Comptroller of the Currency is considering a plan to force banks, themselves, to release enforcement information. …

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