The directors asserted that OCC did not have the authority to assess these civil money penalties. No Evidence Found That OCC’s Net Worth Calculation and Loan Classifications Were Improper

Rushville directors have questioned whether OCC followed its policies and procedures in closing Rushville and have alleged that OCC misclassified performing loans during its last examination to make it appear that the bank was insolvent. GAO’s Review of OCC’s Net Worth Calculation

Our review found that OCC’s net worth calculation showing that Rushville was insolvent by about $326,000 was essentially based on examiners’ determination that the bank lacked sufficient equity to cover estimated loan losses from problem loans. Our review of other banks closed in the 6 months before and after the closure of Rushville did not find evidence that the other banks were treated more favorably. In the 6 months before Rushville’s closure, OCC closed 22 national banks—although 13 of the 22 banks were subsidiaries of a single holding company. No Evidence Found That OCC Influenced the Decision to Recall Holding Company Loan

Rushville directors alleged that, in early 1992, OCC conspired to close Rushville by contacting Liberty National Bank of Louisville (Liberty) to suggest that it call in a $800,000 loan to Rushville’s holding company, Hoosier Bancorp, which was collateralized by Rushville stock. OCC officials and Liberty officers stated that OCC had not attempted to influence the recall of the Hoosier Bancorp loan. Officers of the creditor bank told us that an internal loan review committee identified the Hoosier loan as a problem in 1990 because the Rushville bank stock that collateralized the loan was of questionable value and they doubted the Rushville chairman’s capacity to repay the loan. The judge’s decision is sent to the Comptroller of the Currency for the final determination of the penalty. We found that OCC procedures allow for such increases when examiners-in-charge and OCC officials believe circumstances warrant them. In setting the 1992 Rushville penalties, OCC appears to have followed its procedures that allow for such increases, but for two of the four assessments we found little documentation to support the increases in amounts or the use of factors not covered in the penalty matrix as the basis for setting penalties. The $25,000 penalty assessed against a director was first proposed to be $10,000. Regarding this allegation, a number of the Rushville directors claimed that an OCC attorney expressly stated at the November 12, 1992, meeting at which the chairman was suspended from banking that he could not sell his Rushville stock. In response to a lawsuit filed to allow the chairman to sell his stock, OCC officials sent a letter to the chairman’s attorney on December 4, 1992, telling him that the chairman could sell his stock. To ascertain the nature of OCC’s involvement with the proposed sale of Rushville stock by the chairman and whether OCC followed its policies and procedures, we met with Rushville directors and reviewed documentation they provided. The directors of Rushville gave us documents that they considered relevant, including a chronology of events and related depositions. 2. 3. 4.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the events leading up to the 1992 closure of the Rushville National Bank by the Office of the Comptroller of the Currency (OCC), focusing on whether OCC followed its policies and procedures in its: (1) net worth calculation and loan classifications, which led to Rushville's being declared insolvent; (2) decision to close the bank before implementation of the Federal Deposit Insurance Corporation Improvement Act (FDICIA); (3) contacts with the bank that recalled a loan to Rushville's holding company; (4) determination of civil money penalties assessed against the former Rushville chairman and directors; and (5) involvement with the proposed sale of Rushville holding company stock by Rushville's suspended chairman.

What GAO Found

GAO noted that: (1) during its review, it found that OCC properly calculated Rushville's net worth; (2) also, GAO did not find evidence that OCC's loan classifications or insolvency determination were improper; (3) although some calculations and classifications were based to a great extent on examiner judgment, the examiners' net worth calculation and loan classifications followed OCC procedures; (4) however, GAO's review of loan classifications was made more difficult by the lack of certain documentation; (5) GAO determined that FDICIA's prompt corrective action provisions would not have allowed Rushville to remain open longer; (6) Congress enacted FDICIA to eliminate delays in the closure of problem institutions, and OCC officials told GAO that, for that reason, even if they had not had a pre-FDICIA basis to close Rushville, they would have closed the bank without delay once FDICIA was implemented; (7) in GAO's review of OCC electronic mail and related documents, it found no support for the allegation that OCC tried to close Rushville by seeking to influence the recall of a loan made by a creditor bank to Rushville's holding company; (8) OCC officials and officers of the creditor bank told GAO that OCC never attempted to influence the recall of the holding company loan; (9) officers of the creditor bank told GAO that they first sought repayment of the loan in 1990 because the Rushville bank stock that collateralized the loan was of questionable value and they doubted the Rushville chairman's capacity to repay the loan; (10) regarding the penalties assessed against Rushville directors, GAO found that OCC followed its policies and procedures; (11) however, in a number of instances in the 1990s, the penalties ultimately assessed by OCC were higher than those originally proposed by district officials; (12) while documentation was insufficient for GAO to ascertain how the OCC amounts were determined, OCC procedures allow for such penalty adjustments when circumstances warrant; (13) GAO found no evidence substantiating the Rushville directors' assertion that an OCC official told the Rushville chairman during the meeting at which he was suspended that he could not sell his stock; and (14) moreover, when OCC became aware of the misunderstanding, OCC sent a letter to the chairman stating that he could sell his stock subject to OCC approval.