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Regulators have lifted an enforcement action against a unit of First Financial Northwest (FFNW) in Renton, Wash.
April 5 -
The Federal Reserve Bank of San Francisco has terminated its regulatory action against HomeStreet in Seattle.
March 27
The number of enforcement actions levied against banks is declining, providing more evidence that the industry is regaining its footing.
During a 12-month period that ended Feb. 28, regulators terminated 80 more orders than they issued, based on data from BankDataworks.com. New regulatory orders fell by 35%, while terminations rose by 6%.
There are several reasons for the net decrease in regulatory orders, industry observers say. Some believe that regulators have been giving banks more time to address issues before slapping them with formal orders. Others contend that an increasing number of banks are meeting the requirements of their regulatory orders.
As a result, most industry observers believe that terminations should increase at an accelerated rate in coming months.
"All the orders in 2007 through 2010 are now ripe for terminations," says Thomas Vartanian, a lawyer at Dechert. "We should see even more terminations this year as the economy continues to improve."
The Federal Deposit Insurance Corp. has been especially understanding, as evidenced by a noticeable decline in bank failures this year, says Justin Barr, president of BankDataworks.com. Through mid-April, regulators have closed five banks this year, compared to 16 last year and 34 in 2011.
"The FDIC has clearly let up on the bank failure gas pedal …giving banks that would have likely been closed in 2009 or 2010 more time to solve their own problems," Barr says.
It often takes time for a bank to shed a regulatory order. After an institution meets an order's criteria, they typically must make it through two examination cycles cleanly in order to secure their release, Vartanian says.
Regulators have freed nearly 60 banks from enforcement actions this year, including First Financial Northwest's
Some industry observers say that regulators are applying less pressure on banks, compared to the months following the financial crisis. Banks "are not encountering the early stage ferocious regulators," Walt Moeling, a lawyer at Bryan Cave, said in a
Despite a decline in the number of banks with regulatory orders, a significant number of institutions will remain under enforcement actions for the foreseeable future, industry observers say. Last fall, SNL Financial reported that nearly 13% of all banks and thrifts continued to operate under formal enforcement actions.
"We'll get to a point where all the consent orders that can be terminated, will have been terminated," Barr says.
"There's a segment of institutions that don't have the capital to solve their nonperforming assets, and they're not attractive from an investment perspective because their capital hole is so deep," Barr adds.
The FDIC's list of problem banks still has anywhere from 600 to 700 institutions, Vartanian says. "You can bet most of those have some kind of order and they're not going to get those orders removed until they get out of trouble," he says.
