FDII NEWS RELEASE
fl0(Hl DEl'0$1! IN$UHNCI COIPOUTION
FOR lMMEDIATE REI.EASE Media Contact:
FR-111-91 (7-30-91) Jay Rosenstein (202) 898-7303
FDIC ~Ia3ES NEW SAF'mJARDS ~ST ABJSES BY BANK OFFICERS AND DIRECIORS
'Ihe FDIC Board of Directors, citirg fraud an:l abuse by bank officers an:1
other "insiders" as factors in many bank prd:>lems an:1 failures, today asked
for p,lblic ccmnent on a proposed rule aimed at preventirg future losses an:1
inprovirg detection procedures.
Existirg rules already p.it limits on loans to insiders. Ha-lever, FDIC
officials conten::i that additional safeguards are needed against abuses in
business dealirgs other than extensions of credit. 'lhese include preferential
sales, leases, ccanmissions, fees an:l deposit interest rates.
Significant insider abuse has been identified in 42 percent of the 184
banks that failed in 1987; 31 percent of the 200 banks that failed in 1988;
an:1 25 percent of the 206 banks that failed in 1989.
FDIC Cllainnan L. William Seidman said: 11Qlr records also show that
insider fraud has accounted for nore than half of all the financial
institution fraud an:l embezzlerent cases brought by the Federal Bureau of
Investigation in recent years. Total losses to the FDIC fran those cases
alone reached several hurrlred million dollars. It is clear that insider abuse
is a threat to bank safety an:1 sanethirg the FDIC will not tolerate."
'lhe FDIC proposal would address any non-loan business dealirg between an
insured normember bank an:1 a bank insider that provides a direct or in:lirect
econanic benefit to the intividual. In general, the proposal would require
that the business dealing be interrled for the benefit of the bank, not just
the insider, an:1 that the transaction be made on terns that are substantially
the same as those for non-insiders. Certain large transactions also would
-rrore-
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth SL, N.W., Washington, D.C. 20429 • 202-898-6996
fl0(Hl DEl'0$1! IN$UHNCI COIPOUTION
FOR lMMEDIATE REI.EASE Media Contact:
FR-111-91 (7-30-91) Jay Rosenstein (202) 898-7303
FDIC ~Ia3ES NEW SAF'mJARDS ~ST ABJSES BY BANK OFFICERS AND DIRECIORS
'Ihe FDIC Board of Directors, citirg fraud an:l abuse by bank officers an:1
other "insiders" as factors in many bank prd:>lems an:1 failures, today asked
for p,lblic ccmnent on a proposed rule aimed at preventirg future losses an:1
inprovirg detection procedures.
Existirg rules already p.it limits on loans to insiders. Ha-lever, FDIC
officials conten::i that additional safeguards are needed against abuses in
business dealirgs other than extensions of credit. 'lhese include preferential
sales, leases, ccanmissions, fees an:l deposit interest rates.
Significant insider abuse has been identified in 42 percent of the 184
banks that failed in 1987; 31 percent of the 200 banks that failed in 1988;
an:1 25 percent of the 206 banks that failed in 1989.
FDIC Cllainnan L. William Seidman said: 11Qlr records also show that
insider fraud has accounted for nore than half of all the financial
institution fraud an:l embezzlerent cases brought by the Federal Bureau of
Investigation in recent years. Total losses to the FDIC fran those cases
alone reached several hurrlred million dollars. It is clear that insider abuse
is a threat to bank safety an:1 sanethirg the FDIC will not tolerate."
'lhe FDIC proposal would address any non-loan business dealirg between an
insured normember bank an:1 a bank insider that provides a direct or in:lirect
econanic benefit to the intividual. In general, the proposal would require
that the business dealing be interrled for the benefit of the bank, not just
the insider, an:1 that the transaction be made on terns that are substantially
the same as those for non-insiders. Certain large transactions also would
-rrore-
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth SL, N.W., Washington, D.C. 20429 • 202-898-6996
-2-
require advance approval. by a majority of the bank's board of directors in
accordance with other provisions of the proposed rule.
'lhe proposed rule, if adopted, also 'Walld set new record.keeping
require.rrents am require each bank to adopt written guidelines cxwering
b.Jsiness dealings with insiders. 'lhe new records would help examiners am
auditors better scrutinize insider transactions am prevent abuses before the
safety of the bank might be adversely effected.
Accord:in;J to Chai.man Seidman: "Inadequate record.keeping nearly always
contributes to insider abuse am hanpers our investigations of these abuses.
In addition, we have fourrl that institutions victimized by fraud arrl abuse
typically lacked written policies arrl procedures to detect insider involvement
early enough to prevent a problem. We believe the proposals being issued
today by the FDIC would go a lorg way ta.lard addressing these arrl other causes
of insider fraud arrl abuse."
Another aspect of the FDIC proposal would prohibit insured nonmember
banks fran investing in real estate in which an insider has an equity
interest. 'lbese transactions are believed by FDIC staff to be excessively
dangerous, involving greater risk than nost other investrne.nts arrl creating
conflicts of interest for the bank insider.
Ccmnents on the proposed regulation will be accepted for 60 days after
it appears in the Federal Register. '!be Office of the Cc:srptroller of the
OJrrency is expected to issue a similar proposal soon.
Past investigations by the FDIC have fourrl losses fran a wide variety of
abuses unrelated to loans. 'lbese include: diversions of assets arrl incane by
an insider for personal use; approvals of questionable transactions involving
an insider's relatives; sales or purchases of assets at preferential prices or
quantities; arrl the acceptance of bribes or gratuities.
# # #
require advance approval. by a majority of the bank's board of directors in
accordance with other provisions of the proposed rule.
'lhe proposed rule, if adopted, also 'Walld set new record.keeping
require.rrents am require each bank to adopt written guidelines cxwering
b.Jsiness dealings with insiders. 'lhe new records would help examiners am
auditors better scrutinize insider transactions am prevent abuses before the
safety of the bank might be adversely effected.
Accord:in;J to Chai.man Seidman: "Inadequate record.keeping nearly always
contributes to insider abuse am hanpers our investigations of these abuses.
In addition, we have fourrl that institutions victimized by fraud arrl abuse
typically lacked written policies arrl procedures to detect insider involvement
early enough to prevent a problem. We believe the proposals being issued
today by the FDIC would go a lorg way ta.lard addressing these arrl other causes
of insider fraud arrl abuse."
Another aspect of the FDIC proposal would prohibit insured nonmember
banks fran investing in real estate in which an insider has an equity
interest. 'lbese transactions are believed by FDIC staff to be excessively
dangerous, involving greater risk than nost other investrne.nts arrl creating
conflicts of interest for the bank insider.
Ccmnents on the proposed regulation will be accepted for 60 days after
it appears in the Federal Register. '!be Office of the Cc:srptroller of the
OJrrency is expected to issue a similar proposal soon.
Past investigations by the FDIC have fourrl losses fran a wide variety of
abuses unrelated to loans. 'lbese include: diversions of assets arrl incane by
an insider for personal use; approvals of questionable transactions involving
an insider's relatives; sales or purchases of assets at preferential prices or
quantities; arrl the acceptance of bribes or gratuities.
# # #