FDIC Oversight in Three Failures Faulted

A new round of watchdog reports says the Federal Deposit Insurance Corp. could have been tougher in regulating three community banks that later closed.

The agency's inspector general on Jan. 6 released reviews of the failures of $974 million-asset Cooperative Bank in Wilmington, N.C.; $380 million-asset Southern Community Bank in Fayetteville, Ga., and $75 million-asset MetroPacific Bank in Irvine, Calif. All three reports said the FDIC could have taken enforcement action more quickly after risks emerged at the institutions, which had high concentrations of construction loans.

In the case of Cooperative, the inspector general said, "a stronger supervisory response at earlier examinations … to address" the bank's "weak risk management practices may have been prudent."

The report added: "Earlier and stronger supervisory action may have influenced Cooperative's board and management to constrain its excessive risk-taking, thereby mitigating, to some extent, the losses incurred by the" Deposit Insurance Fund.

The agencies' inspectors general are required to analyze failures whenever they bring a large government price tag. The reports, known as "material loss reviews," have routinely criticized all of the regulators' prefailure supervision since closures began picking up in late 2008.

Since the start of last year, the FDIC's watchdog has issued 35 reports, the Federal Reserve Board's has issued five, and the Treasury Department's has issued 11. (Treasury's inspector general oversees the Office of the Comptroller of the Currency and the Office of Thrift Supervision.)

The full reports can be read at www.fdicoig.gov.

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