12 U.S.C. § 4513b: Prudential management and…

Summary

The Director must create rules and guidelines that tell each regulated entity how to manage its operations safely. These standards cover things like internal controls and computer systems, internal audits, interest-rate and market risks, liquidity and reserves, asset and investment growth and purchases, overall risk management and board oversight, credit and counterparty risks and concentration limits, and keeping clear financial records. The Director can also add other management or operational standards as needed. If the Director finds an entity is not meeting a standard, the entity must usually send a plan saying how it will fix the problem. If the standard is a regulation, the Director must require the plan; if it is a guideline, the Director may require it. The Director’s rules will generally require the plan to be sent not later than 30 days after the finding and the Director to act on the plan not later than 30 days after it is sent. If an entity fails to send an acceptable plan or fails to carry it out, the Director will order corrections and may limit asset growth, require higher capital ratios (for enterprises, more core capital to assets; for Federal Home Loan Banks, more total capital to assets), or take other actions. If the entity both failed to meet a standard and has not fixed it, and it had extraordinary growth in the 18-month period before it first fell short, the Director must use one or more of those controls. These powers are in addition to any other powers the Director already has.

Title 12, §4513b

Banks and Banking, Source: USLM XML via OLRC

(a)Standards

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)Failure to meet standards

(1)Plan requirement

(A)In general

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)Contents

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)Deadlines for submission and review

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)Required order upon failure to submit or implement plan

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)Required correction of deficiency

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

(B)Other authority

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)Mandatory restrictions

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)Other enforcement authority not affected

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