Thinking Of Switching Bank Charters? Think Again

Whitlock Company Media & Resources

Thinking Of Switching Bank Charters? Think Again

July 21st, 2009

The FFIEC just issued Statement on Regulatory Conversions that will make it harder for financial institutions subject to enforcement actions to switch charters.

Over the last couple of years the OCC in particular has been using formal agreements as a regulatory tool to force banks to change the way they are conducting business. In today’s environment with bank failures coming at such a fast pace this makes some sense. However, I have seen cases where the bank has a problem in the management area, they are placed under a formal agreement with the OCC, they immediately correct the situation and it takes another 18 months to get the formal agreement removed.

My point is once these banks are under a formal agreement, the OCC seems reluctant to release them in a timely manner. In these cases the bank had a way out. They could switch to a state charter if the state’s top regulator approved. Now the FFIEC has effectively taken away that option for these banks with the words “Conversion requests submitted while serious or material enforcement actions are pending should not be entertained”. I do not believe that any state regulator would accept a charter that they believed would ultimately fail. Shouldn’t the state regulator have the right to make this decision?