The Office of the Comptroller of the Currency was slow to handle problems at ANB Financial before it failed in May, and the agency needs better procedures generally for banks with high amounts of brokered deposits, a report by the Treasury Department's inspector general said.

The report said the OCC did not issue an enforcement action against the $1.9 billion-asset Bentonville, Ark., company in time to save it and continued to give it high ratings, even though it showed dangerous signs of risky growth.

The agency "was not aggressive enough in the supervision of ANB in light of the bank's rapid growth, high concentrations in commercial real estate loans, reliance on brokered deposits, and weak credit risk management practices," according to the report, which was released last week as part of the government's review of large failures.

The inspector general urged the OCC to toughen its supervision of banks that begin to show weaknesses, reassess examination policy related to a bank's use of wholesale funding, and establish a process for reviewing the causes of specific failures.

ANB failed with a bulk of troubled commercial real estate loans tied to volatile real estate markets in Arkansas, Idaho, Wyoming, and Utah, as well as a disproportionate amount of brokered deposits. Its $1.6 billion of brokered funds made up about 86% of its deposit base.

The report criticized the OCC for reacting inadequately to ANB's sharp growth and its rise in problem loans after examinations in 2005 and 2006. Despite troubling signs, including the fact that in June 2005 it had been put on a watch list — operated by the OCC's Western District — for banks with uncontrolled growth, ANB kept its Camels rating of 1, the highest ranking possible.

"OCC identified most of ANB's problems in 2005; however, it took no forceful action until 2007," the report said.

The inspector general said the OCC had been "generally responsive" to the report's recommendations, though "additional action is needed to institutionalize" the process for reviewing the lessons learned from national bank failures.

Comptroller of the Currency John Dugan wrote in a Nov. 24 letter that his agency is taking steps to address the findings.

"We agree that, in the case of ANB, there were shortcomings in our execution."

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