Regulators once doled out orders in droves. Now they are handing out directives in dashes.
The Federal Deposit Insurance Corp. said late last month that it issued just four consent orders to banks in July after issuing three a month earlier.
Banking experts estimate that as many as a third of the nation's banks have received some sort of formal consent order since the onset of the banking crisis in 2008. As a result, there are not that many banks left to wrangle.
The continued issuance of new orders, however, serves as a reminder that there are still banks struggling with credit or facing other types of distress.
"Most of the troubled banks have been dealt with. The boom-and-bust states obviously saw a lot earlier on, but now we have some [orders] in place where you didn't see the overbuilding," says Jeffrey C. Gerrish, a partner at Gerrish McCreary Smith. Certain banks "are seeing stress now because of the prolonged recession."
The four banks that received orders in July are the $127 million-asset Bank of Southern Connecticut in New Haven; the $137 million-asset Peoples Bank in Eatonton, Ga.; the $113 million-asset Peoples Bank in Covington, Ga.; and the $97 million-asset First Community Bank of Crawford County in Van Buren, Ark. The Peoples Banks are unrelated.
The lower number of banks receiving orders reflects "the continued recovery of the industry," Serena Owens, the associate director for the division of risk management and supervision at the FDIC, wrote in an email. "There are fewer new consent orders being issued, and an increasing number of consent orders are being lifted as institutions improve their financial condition and management practices."
The new group of targeted banks benefits from being late to the party, industry experts say.The economy, while still struggling, has a lot more certainty than it did a few years earlier.
"The economy is much better — regardless of where you are politically — than it was in 2008," says Walter Moeling 4th, a partner at Bryan Cave.
"At that time, we were in a free fall," Moeling says. "Now, it has largely stabilized. So, if you're going under an order now it is probably because one or two credits just don't have enough strength to continue to be unclassified."
Terry Carson, who became the president of First Community Bank of Crawford County on Sept. 1, agrees with Moeling. He says his bank's plight is perhaps not as arduous for two reasons: the local economy is strengthening and there are fewer struggling banks trying to unload problems to satisfy regulatory orders.
"There has already been a great improvement in northwest Arkansas this calendar year; building permits are up," Carson says. "It is better now than it was earlier when so many of those orders came out. Banks were dumping properties and it just overwhelmed the market."
Though dealing with credit issues might be easier, calls in the orders for higher capital ratios remain a major challenge.
"For troubled institutions, raising capital has not gotten easier," Gerrish says. "These guys are going to survive, but they might have to operate as a dirty bank for the next four or five years."
First Community is trying to raise capital, Carson says. The bank has an offering out to existing shareholders. Carson declined to say how much he wants to raise, though the bank hopes to complete the capital raise in the next six months. The bank is also looking to shrink assets.
Moeling says banks with the most recent orders should benefit from a friendlier regulatory treatment. Regulators know these banks have worked hard to deal with the last few years and, in many cases, are receiving orders because their classified assets ratio hit a 100% of Tier 1 capital and loan-loss allowance. At a small bank, one or two struggling loans can cause that shift, he says.
"They are not encountering the early stage ferocious regulators," Moeling says. The mindset "is more of a 'we hate to do this to you, but your classified assets ratio is just too high' attitude."