A Virginia banker has been ordered by the government to stop lending money-his own-to customers that his bank has turned down for loans.
The Federal Deposit Insurance Corp. issued a cease-and-desist order against C.S. Taylor Burke 3d, a senior vice president at Burke & Herbert Bank and Trust Co., Alexandria, Va., on July 1. The order was made public this month.
Mr. Burke said he has lent his own money to customers of the family-run bank "many times over the years."
"I didn't think there was anything wrong with it," he said. "I still don't. I always thought you could do what you wanted with your own money."
FDIC officials would not discuss the order. However, the written document calls for Mr. Burke to stop using his own money to make loans to bank customers. The order also said he should refrain from buying loans from the bank and making bank loans of more than $200,000 without approval from the bank's loan committee and board of directors.
A FDIC spokesman said that although there is no regulation preventing individuals at a bank from making personal loans, it is considered that person's fiduciary duty to disclose such actions to the board of directors.
Mr. Burke, who has been with the bank for 25 years, said he chose not to dispute the FDIC order because that would have "caused more of an embarrassment." Also, legal fees would make it expensive to challenge, he said.
Mr. Burke is the son of C.S. Taylor Burke 2d, the bank's chief executive officer. The Burke family helped found it 145 years ago.
Mr. Burke said the investigation into his loan practices stemmed from a routine internal audit reported to the FDIC, not a government inspection. He said there was no bank policy requiring him to notify the board of his actions.
As part of the FDIC order, he is required to make full disclosure to the bank's board of directors of any personal ownership interest in or service to an entity that is a bank customer.
This is not the first time the bank's loan practices have been questioned.
In April 1995 the Virginia Supreme Court sided with Burke & Herbert against a borrower who claimed he had an oral agreement with the bank to rearrange his payment schedule. The bank had foreclosed on the borrower as was called for in the original loan agreement.
Mr. Burke said that case was not related to the current order.
With the industry healthy, cease-and-desist orders against banks have steadily decreased in the past few years. Regulators say most are issued because banks don't have enough capital-uncommon in the capital-rich banking industry of the late 1990s.
The FDIC has issued seven cease-and-desist orders this year as of July 31, down from a full-year high of 148 such orders in 1992. u
