WASHINGTON — Banks have been able to access government capital injections even if they don't meet Treasury Department criteria or have outstanding enforcement actions from their regulator, according to a report released Monday by a government watchdog.
An examination by the Federal Deposit Insurance Corp.'s inspector general found that banks facing a cease and desist order or with low safety and soundness ratings are not necessarily disqualified from the $250 billion Capital Purchase Program. Investigators instead found that regulators were willing to consider additional factors when reviewing applications for government aid, a fact the report said could cause problems for the program.
"The ability of the FDIC, and other bank regulators, to consider mitigating factors when making application decisions adds discretion to the process and inherently increases the risk of inconsistency," the inspector general's report said.
An examination of the 408 applications the FDIC had recommended for approval to Treasury as of Jan. 15 found that about 15% of the banks in question were subject to an existing compliance or safety and soundness enforcement action. This included 3 cease and desist orders and 23 memoranda of understanding, the report said.
Investigators also found that the FDIC has not specifically disqualified banks from receiving government aid just because they don't meet the Treasury's criteria for applicants. An analysis of 172 applications processed by the agency as of Dec. 10 found that 17, or 10%, fell short of the Treasury's thresholds for safety and soundness and compliance with the Community Reinvestment Act.
The report found that the FDIC eventually recommended 13 of the 17 questionable applications to an interagency council for further review after considering additional information about the banks in question. These mitigating factors looked at by the FDIC included a bank committing to raise significant capital, a firm considered to have "favorable management," and a commitment from various institutions to reduce construction and development loans.
Overall, the inspector general's report found that the FDIC had followed the Treasury's guidance on handling applications "for substantially all of the applications" that were reviewed.