PRIA, Government Policy, Made Personal

Summary

A regulated entity that is classified as significantly undercapitalized must send the Director a capital restoration plan under the time limits in sections 4622(b) and 4622(d) and must follow the plan once the Director approves it. The entity may not make any capital payment that would make it critically undercapitalized. Any other capital payment needs the Director’s prior approval. The Director can approve a payment only if it will (1) help the entity quickly meet its risk-based and minimum capital levels, (2) help the entity stay safe and sound over the long term, or (3) be in the public interest. The Director may also take one or more actions at any time. These can include limiting or reducing obligations (including off-balance-sheet items), stopping or shrinking asset growth, requiring new capital in amounts and forms the Director sets, forcing the entity to end or cut risky activities, or fixing management by ordering a new board election, removing directors or officers who served more than 180 days before the undercapitalized date, or requiring qualified executives (who may need the Director’s approval). The Director may reclassify the entity as critically undercapitalized (and make it subject to section 4617) if the entity fails to submit an acceptable plan within the applicable period under section 4622 or fails to make good-faith, reasonable efforts to follow the approved plan. The entity may not pay bonuses or raise an executive’s pay above the average monthly rate from the prior 12 months (excluding bonuses, stock options, and profit sharing) without the Director’s written approval.

Title 12, §4616

Banks and Banking, Source: USLM XML via OLRC

(a)Mandatory supervisory actions

(1)Capital restoration plan

A regulated entity that is classified as significantly undercapitalized shall, within the time period under section 4622(b) and (d) of this title, submit to the Director a capital restoration plan that complies with section 4622 of this title and carry out the plan after approval.

(2)Restrictions on capital distributions

(A)Prior approval

A regulated entity that is classified as significantly undercapitalized may not make any capital distribution that would result in the regulated entity being reclassified as critically undercapitalized. A regulated entity that is classified as significantly undercapitalized may not make any other capital distribution unless the Director approves the distribution.

(B)Standard for approval

The Director may approve a capital distribution by a regulated entity classified as significantly undercapitalized only if the Director determines that the distribution (i) will enhance the ability of the regulated entity to meet the risk-based capital level and the minimum capital level for the regulated entity promptly, (ii) will contribute to the long-term financial safety and soundness of the regulated entity, or (iii) is otherwise in the public interest.

(b)Specific actions

In addition to any other actions taken by the Director (including actions under subsection (a)), the Director shall carry out this section by taking, at any time, 1 or more of the following actions with respect to a regulated entity that is classified as significantly undercapitalized:

(1)Limitation on increase in obligations

Limit any increase in, or order the reduction of, any obligations of the regulated entity, including off-balance sheet obligations.

(2)Limitation on growth

Limit or prohibit the growth of the assets of the regulated entity or require contraction of the assets of the regulated entity.

(3)Acquisition of new capital

Require the regulated entity to acquire new capital in a form and amount determined by the Director.

(4)Restriction of activities

Require the regulated entity to terminate, reduce, or modify any activity that the Director determines creates excessive risk to the regulated entity.

(5)Improvement of management

Take 1 or more of the following actions:

(A)New election of board

Order a new election for the board of directors of the regulated entity.

(B)Dismissal of directors or executive officers

Require the regulated entity to dismiss from office any director or executive officer who had held office for more than 180 days immediately before the date on which the regulated entity became undercapitalized. Dismissal under this subparagraph shall not be construed to be a removal pursuant to the enforcement powers of the Director under section 4636a of this title.

(C)Employ qualified executive officers

Require the regulated entity to employ qualified executive officers (who, if the Director so specifies, shall be subject to approval by the Director).

(6)Reclassification from significantly to critically undercapitalized

The Director may reclassify as critically undercapitalized a regulated entity that is classified as significantly undercapitalized (and the regulated entity shall be subject to the provisions of section 4617 of this title) if—

(A)the regulated entity does not submit a capital restoration plan that is substantially in compliance with section 4622 of this title within the applicable period or the Director does not approve the capital restoration plan submitted by the regulated entity; or

(B)the Director determines that the regulated entity has failed to make, in good faith, reasonable efforts necessary to comply with the capital restoration plan and fulfill the schedule for the plan approved by the Director.

(7)Other action

Require the regulated entity to take any other action that the Director determines will better carry out the purpose of this section than any of the other actions specified in this subsection.

(c)Restriction on compensation of executive officers

A regulated entity that is classified as significantly undercapitalized in accordance with section 4614 of this title may not, without prior written approval by the Director— (1)

(2)provide compensation to any executive officer at a rate exceeding the average rate of compensation of that officer (excluding bonuses, stock options, and profit sharing) during the 12 calendar months preceding the calendar month in which the regulated entity became significantly undercapitalized.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2008—Subsec. (a)(1). Pub. L. 110–289, § 1144(3), substituted “A regulated entity” for “An enterprise”. Subsec. (a)(2)(A). Pub. L. 110–289, § 1144(1)–(3), substituted “A regulated entity” for “An enterprise” in two places, “the regulated entity” for “the enterprise”, and, in second sentence, “undercapitalized” for “undercapitalized enterprise”. Subsec. (a)(2)(B). Pub. L. 110–289, § 1144(2), (4), substituted “a regulated entity” for “an enterprise” and “the regulated entity” for “the enterprise” wherever appearing. Subsec. (b). Pub. L. 110–289, § 1144(4), (5)(A), (B), substituted “Specific” for “Discretionary supervisory” in heading and “shall carry out this section by taking, at any time, 1 or more” for “may, at any time, take any” and “a regulated entity” for “an enterprise” in introductory provisions. Subsec. (b)(1) to (4). Pub. L. 110–289, § 1144(2), substituted “the regulated entity” for “the enterprise” wherever appearing. Subsec. (b)(5). Pub. L. 110–289, § 1144(5)(E), added par. (5). Former par. (5) redesignated (6). Pub. L. 110–289, § 1144(2), (4), substituted “a regulated entity” for “an enterprise” in introductory provisions and “the regulated entity” for “the enterprise” wherever appearing. Subsec. (b)(6). Pub. L. 110–289, § 1144(5)(C), (D), redesignated par. (5) as (6) and struck out former par. (6) which permitted the Director to appoint a conservator. Subsec. (b)(7). Pub. L. 110–289, § 1144(5)(F), added par. (7). Subsec. (c). Pub. L. 110–289, § 1144(6), added subsec. (c) and struck out former subsec. (c). Prior to amendment, text read as follows: “This section shall take effect upon the first classification of the enterprises within capital classifications that occurs under section 4614 of this title.”

§4616 Supervisory Actions Applicable to Significantly Undercapitalized Regulated Entities

Summary

Title 12, §4616

Notes & Related Subsidiaries

Editorial Notes

Amendments

Citations & Metadata