12 CFR 325.105 - Mandatory and discretionary supervisory actions under section 38.
(a) Mandatory supervisory actions -
(1) Provisions applicable to all banks. All banks are subject to the restrictions contained in section 38(d) of the FDI Act on payment of capital distributions and management fees.
(2) Provisions applicable to undercapitalized, significantly undercapitalized, and critically undercapitalized banks. Immediately upon receiving notice or being deemed to have notice, as provided in § 325.102 of this subpart, that the bank is undercapitalized, significantly undercapitalized, or critically undercapitalized, the bank shall become subject to the provisions of section 38 of the FDI Act:
(i) Restricting payment of capital distributions and management fees (section 38(d));
(ii) Requiring that the FDIC monitor the condition of the bank (section 38(e)(1));
(iii) Requiring submission of a capital restoration plan within the schedule established in this subpart (section 38(e)(2));
(iv) Restricting the growth of the bank's assets (section 38(e)(3)); and
(v) Requiring prior approval of certain expansion proposals (section 38(e)(4)).
(3) Additional provisions applicable to significantly undercapitalized, and critically undercapitalized banks. In addition to the provisions of section 38 of the FDI Act described in paragraph (a)(2) of this section, immediately upon receiving notice or being deemed to have notice, as provided in § 325.102 of this subpart, that the bank is significantly undercapitalized, or critically undercapitalized, or that the bank is subject to the provisions applicable to institutions that are significantly undercapitalized because the bank failed to submit or implement in any material respect an acceptable capital restoration plan, the bank shall become subject to the provisions of section 38 of the FDI Act that restrict compensation paid to senior executive officers of the institution (section 38(f)(4)).
(4) Additional provisions applicable to critically undercapitalized institutions.
(i) In addition to the provisions of section 38 of the FDI Act described in paragraphs (a)(2) and (a)(3) of this section, immediately upon receiving notice or being deemed to have notice, as provided in § 325.102 of this subpart, that the insured depository institution is critically undercapitalized, the institution is prohibited from doing any of the following without the FDIC's prior written approval:
(A) Entering into any material transaction other than in the usual course of business, including any investment, expansion, acquisition, sale of assets, or other similar action with respect to which the depository institution is required to provide notice to the appropriate Federal banking agency;
(B) Extending credit for any highly leveraged transaction;
(C) Amending the institution's charter or bylaws, except to the extent necessary to carry out any other requirement of any law, regulation, or order;
(D) Making any material change in accounting methods;
(E) Engaging in any covered transaction (as defined in section 23A(b) of the Federal Reserve Act (12 U.S.C. 371c(b));
(F) Paying excessive compensation or bonuses;
(G) Paying interest on new or renewed liabilities at a rate that would increase the institution's weighted average cost of funds to a level significantly exceeding the prevailing rates of interest on insured deposits in the institution's normal market areas; and
(H) Making any principal or interest payment on subordinated debt beginning 60 days after becoming critically undercapitalized except that this restriction shall not apply, until July 15, 1996, with respect to any subordinated debt outstanding on July 15, 1991, and not extended or otherwise renegotiated after July 15, 1991.
(ii) In addition, the FDIC may further restrict the activities of any critically undercapitalized institution to carry out the purposes of section 38 of the FDI Act.
(5) Exception for certain savings associations. The restrictions in paragraph (a)(4) of this section shall not apply, before July 1, 1994, to any insured savings association if:
(i) The savings association had submitted a plan meeting the requirements of section 5(t)(6)(A)(ii) of the Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)) prior to December 19, 1991;
(ii) The Director of OTS had accepted the plan prior to December 19, 1991; and
(iii) The savings association remains in compliance with the plan or is operating under a written agreement with the appropriate federal banking agency.
(b) Discretionary supervisory actions. In taking any action under section 38 that is within the FDIC's discretion to take in connection with:
(1) An insured depository institution that is deemed to be undercapitalized, significantly undercapitalized, or critically undercapitalized, or has been reclassified as undercapitalized, or significantly undercapitalized; or
(2) An officer or director of such institution, the FDIC shall follow the procedures for issuing directives under §§ 308.201 and 308.203 of this chapter, unless otherwise provided in section 38 or this subpart.