Memorandum of Understanding (MOU) – a means of seeking informal corrective
administrative action from banks considered to be of supervisory concern, but have not
deteriorated to the point where they warrant formal administrative action. (Goal of MOU
is to obtain correction by sharply focusing on the bank’s problem areas and defining
responsibilities for ensuring that deficiencies are addressed)
When to Implement MOU
- Informal administrative actions should be considered for all bank’s rated composite 3
- Formal administrative action may be taken against composite 3 rated banks when:
     - Management is unwilling to take necessary corrective action under informal
- Informal administrative action may be taken against banks that have a composite
     rating other than 3 (this suggest 1,2,3,4 or 5 rated banks may be subject to informal
- MOU should be used over formal administrative action where:
     - The RO believes the problems discussed with management and the Board of the
         bank have been adequately detailed and the bank, in good faith, will move to
         eliminate the problems
- Failure to comply with a MOU may lead to more formal administrative action
- After consulting the RO, examiners should discuss with management/Board the
     probable use of a MOU at all examinations where a composite 3 rating is assigned
- RD determines whether or not a MOU should be used at a 3-rated bank.
     - Belief that management has recognized its error and will improve is not a
         sufficient basis not assigning a MOU
Termination of MOU
- Termination of an outstanding MOU should be considered when the bank’s overall
     condition has improved significantly and the bank has substantially complied with its
- Monitor adherence to MOU by either:
     - Progress reports
     - Visitations
     - Examinations
- Examiners should detail each provision of the MOU and provide sufficient details
     regarding the banks action (or inaction) to allow for meaningful conclusions
     concerning the extent of compliance
- (Report should never state in compliance or not in compliance)

- CMPs assessed to:
   - Punish the violator according to the degree of culpability and severity of the
   - To deter future violation
   - No to affect remedial action
- CMPs may be assessed for:
   -    Violation of any law or regulation
   -    Final order or temporary order issued
   -    Condition imposed in writing by the appropriate Federal banking agency in
        connection with the approval of any application
    - Any written agreement between a bank and a Federal banking agency
Factors To Consider In Determining Assessing CMPs (13)
- Evidence that the violation, practice, or breach of fiduciary duty was intentional or
    was committed with a disregard for the law or with a disregard of the consequences to
    the bank
- Duration and frequency of the violation, practice, or breach
- Continuation of the violation, practice, or breach after the respondent was notified or,
    alternatively, its immediate cessation and correction
- Failure to cooperate with the agency if effective early resolution of the problem
- Evidence of concealment of the vpb or, alternatively, voluntary disclosure of the vpb
- Any threat of loss, actual loss, or other harm to the bank, including harm to the public
    confidence in the bank, and the degree of such harm
- Evidence that a participant or his or her associates received financial gain or other
    benefit as a result of the vpb
- Evidence of any restitution paid by a participant of losses resulting from the vpb
- History of prior vpb, (particularly where they are similar to the actions under
- Previous criticism of the bank or individual for similar actions
- Presence or absence of a compliance program (and its effectiveness)
- Tendency to engage in vpb
- Existence of agreements, commitments, orders, or conditions imposed in writing
    intended to prevent the vpb
- Also should meet one of the following criteria (4)
- Violation causes the bank to suffer a substantial financial loss;
- Violation is willful, flagrant, or otherwise evidences bad faith on the part of the bank
    or individual(s) involved in the violation (including repeated and/or multiple
- Violation directly or indirectly involves an insider, or an associate of an insider, who
    benefits from the transaction in a material or substantial way; OR
- Previous supervisory means have not been effective in eliminating or deterring
*When assessing CMPs is not considered appropriate, corrective action may be sought by
the RO sending a supervisory letter to the bank’s Board. The letter should:
- Request adoption of a resolution indicating the directorate’s intent to correct the
- Request the procedures be implemented to prevent future infractions
- (The bank should notify the RD when and how the violation(s) have been remedied
*Violation of a Cease-and-Desist Order that is final or an issued Capital Directive,
recommendation can be made for initiation of a CMP
- Whenever a violation committed results in a personal financial or economic gain
    and/or financial loss to the bank, the amount involved shall be repaid as a portion of
   the penalty assessment or, preferably, through restitution to the bank if the bank
   suffered a loss
- (Should make restitution to the bank for all losses suffered, or repay the personal gain
   or bank loss plus pay a penalty over and above these amounts for violating the law)
- Promptness in making restitution has a bearing on the amount of penalty
- Tier 1 – penalties up to $5,500 per day may be assessed for most violations
- Tier 2 – penalties up to $27,500 per day may be assessed if a party commits a:
   - Violation
   - Recklessly engages in an unsafe and or unsound practice
   - Breaches a fiduciary duty which is a pattern of misconduct
   - Causes more than minimal loss to the bank or results in a pecuniary gain to such
- Tier 3 – penalties up to the lessor of $1,100M or 1% of total assets may be assessed if
   a violation, unsafe or unsound practice, breach of fiduciary duty is knowingly
   committed and causes a substantial loss to the bank or a substantial pecuniary gain to
   the violator
- Prime factors to consider:
   - Amount of loss to the bank and/or gain to the violator
   - Restitution to the bank of the amount lost
   - Financial resources of the individual/party
   - The gravity of the violation and the involvement in the violation of the
- Recommendations should be submitted to the RO and not communicated with the
Examination Procedures
- Complete the CMP matrix (matrix will aid in supporting the appropriateness and/or
   level of CMPs)
   - CMP matrix is most useful in Tier 1 penalty cases, but should be prepared
       whenever a penalty is being considered
- Other fineable actions should be communicated with the RO (late or inaccurate Call
   Reports, inaccurate certification statements or late payment of deposit insurance
- Violation comments should not reference FDIC’s power to impose CMPs
- Examiners should fully discuss violations of law with management, however,
   discussion of the CMP process should be limited
- Home mailing addresses for all directors and any other individuals involved in a
   fineable violation should be included in the Confidential section of the report (when
   CMPs are contemplated)
- When a violation involves financial gain to an insider and/or financial loss to the
   bank, attempt to determine a monetary value, and include it in the violation write-up
- Always consult the RO when CMPs are contemplated
- Do not discuss penalty matters relating to Section 8 (may address that CMPs may be
   assessed for non-compliance with terms of the order)
-  Evidence in support of a likely action should be copied and retained in the FO.
   Evidence should be segregated in a labeled enveloped and kept apart from regular
Other Considerations
- State report should not be utilized to support a CMP recommendation or request for
   restitution (RD does have discretion to use state report or not)
Guidelines for Using the CMP Matrix
- The matrix is only a guide and should not be used solely to make a decision
- 1 matrix per person for all violations, where there are several violations, practices, or
   breaches of duty included in one matrix, the highest severity level applicable to any
   of the violations, practices or breaches of duty should be recorded for each factor on
   the matrix
- 1 matrix for a group of persons with similar culpability. However, if individual(s)
   were more culpable than others, a separate matrix should be completed for each
   degree of involvement per individual (if there is a group of 6 and 2 were more
   involved, fill out two matrix’s, one for the 2 and another for the 4)
- IAP – any director, officer, employee or controlling shareholder, any person who has
   filed or is required to file a change in control, any shareholder, consultant, joint
   venture partner, or other person who participates in the banks affairs, OR any
   independent contractor (attorney, appraiser, accountant)
- Unsafe and unsound practice – one in which there has been some conduct, whether
   act or omission, which is contrary to accepted standards of prudent banking operation,
   and which might result in exposure of the bank or its shareholders to abnormal risk or
   loss. May be considered reckless if it evidences disregard of, or indifference to, the
   consequences of the practice, even through no harm may be intended

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