§4513b — Title 12 Banks and Banking | U.S. Code

Summary

The Director must create rules and guidance for each regulated entity about how to run its business safely. The rules cover things like internal controls and computer systems, independent internal audits, interest-rate and market risk (including ways to measure, watch, and limit those risks), keeping enough liquidity and reserves, managing asset and investment growth and purchases, overall risk management and board oversight, plans to resume business after disruptions (including remote sites), credit and counterparty risk (and limits on big exposures), keeping proper accounting records, and any other management or operational standards the Director finds needed. If an entity breaks a rule, the Director will usually require a written fix-it plan (regulation-based rules require a plan; guidance-based rules may). Plans must explain the corrective steps and can be part of a capital-restoration plan if needed. The Director generally gives entities 30 days to send a plan and aims to act on plans within 30 days. If an entity misses the deadline or does not follow an accepted plan, the Director can order corrections and can limit asset growth, force higher capital ratios (enterprises raise core capital; Federal Home Loan Banks raise total capital), or take other actions. The Director must use these tools when an entity failed a standard, hasn’t fixed it, and had extraordinary growth in the prior 18 months. The Director’s power here adds to other authorities the Director already has.

Title 12, §4513b

Banks and Banking — Source: USLM XML via OLRC

(a)The Director shall establish standards, by regulation or guideline, for each regulated entity relating to—

(1)adequacy of internal controls and information systems taking into account the nature and scale of business operations;

(2)independence and adequacy of internal audit systems;

(3)management of interest rate risk exposure;

(4)management of market risk, including standards that provide for systems that accurately measure, monitor, and control market risks and, as warranted, that establish limitations on market risk;

(5)adequacy and maintenance of liquidity and reserves;

(6)management of asset and investment portfolio growth;

(7)investments and acquisitions of assets by a regulated entity, to ensure that they are consistent with the purposes of this chapter and the authorizing statutes;

(8)overall risk management processes, including adequacy of oversight by senior management and the board of directors and of processes and policies to identify, measure, monitor, and control material risks, including reputational risks, and for adequate, well-tested business resumption plans for all major systems with remote site facilities to protect against disruptive events;

(9)management of credit and counterparty risk, including systems to identify concentrations of credit risk and prudential limits to restrict exposure of the regulated entity to a single counterparty or groups of related counterparties;

(10)maintenance of adequate records, in accordance with consistent accounting policies and practices that enable the Director to evaluate the financial condition of the regulated entity; and

(11)such other operational and management standards as the Director determines to be appropriate.

(b)(1)(A)If the Director determines that a regulated entity fails to meet any standard established under subsection (a)—

(i)if such standard is established by regulation, the Director shall require the regulated entity to submit an acceptable plan to the Director within the time allowed under subparagraph (C); and

(ii)if such standard is established by guideline, the Director may require the regulated entity to submit a plan described in clause (i).

(B)Any plan required under subparagraph (A) shall specify the actions that the regulated entity will take to correct the deficiency. If the regulated entity is undercapitalized, the plan may be a part of the capital restoration plan for the regulated entity under section 4622 of this title.

(C)The Director shall by regulation establish deadlines that—

(i)provide the regulated entities with reasonable time to submit plans required under subparagraph (A), and generally require a regulated entity to submit a plan not later than 30 days after the Director determines that the entity fails to meet any standard established under subsection (a); and

(ii)require the Director to act on plans expeditiously, and generally not later than 30 days after the plan is submitted.

(2)If a regulated entity fails to submit an acceptable plan within the time allowed under paragraph (1)(C), or fails in any material respect to implement a plan accepted by the Director, the following shall apply:

(A)The Director shall, by order, require the regulated entity to correct the deficiency.

(B)The Director may, by order, take one or more of the following actions until the deficiency is corrected:

(i)Prohibit the regulated entity from permitting its average total assets (as such term is defined in section 4516(b) of this title) during any calendar quarter to exceed its average total assets during the preceding calendar quarter, or restrict the rate at which the average total assets of the entity may increase from one calendar quarter to another.

(ii)Require the regulated entity—

(I)in the case of an enterprise, to increase its ratio of core capital to assets.

(II)in the case of a Federal Home Loan Bank, to increase its ratio of total capital (as such term is defined in section 1426(a)(5) of this title) to assets.

(iii)Require the regulated entity to take any other action that the Director determines will better carry out the purposes of this section than any of the actions described in this subparagraph.

(3)In complying with paragraph (2), the Director shall take one or more of the actions described in clauses (i) through (iii) of paragraph (2)(B) if—

(A)the Director determines that the regulated entity fails to meet any standard prescribed under subsection (a);

(B)the regulated entity has not corrected the deficiency; and

(C)during the 18-month period before the date on which the regulated entity first failed to meet the standard, the entity underwent extraordinary growth, as defined by the Director.

(c)The authority of the Director under this section is in addition to any other authority of the Director.

Notes & Related Subsidiaries

Editorial Notes

References in Text

This chapter, referred to in subsec. (a)(7), was in the original “this title”, meaning title XIII of Pub. L. 102–550, Oct. 28, 1992, 106 Stat. 3941, which is classified principally to this chapter. For complete classification of title XIII to the Code, see

Short Title

note set out under section 4501 of this title and Tables.

§4513b Prudential Management and Operations Standards