AI Legalese Decoder: Revolutionizing Small Business Banks’ Compliance with Enforcements as Fed Targets Kansas-based Bank
- September 5, 2023
- Posted by: legaleseblogger
- Category: Related News
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The Federal Reserve Issues Cease and Desist Order to Small Business Bank
The Federal Reserve Board recently issued a cease and desist order against Small Business Bank and its holding company, Gardner Bancshares, Inc., based in Lenexa, Kansas. The order cites numerous “operations deficiencies” that need to be addressed.
Various Regulatory Shortcomings
The cease and desist order highlights a range of issues that were identified during the bank’s most recent examination by state and federal supervisors in October 2022. These issues include staffing, internal controls, credit risk management, lending and credit administration, capital, information technology and security, books and records, regulatory reporting, liquidity and funds management, earnings, interest rate risk management, third-party risk management, and oversight issues related to anti-money laundering (AML) and Bank Secrecy Act (BSA) compliance.
The Federal Reserve’s enforcement action states that Gardner Bancshares should allocate “adequate resources” to ensure effective oversight of Small Business Bank and address the identified supervisory shortcomings. The order also emphasizes the importance of officers and staff possessing the necessary qualifications, skills, and training to competently perform their duties.
About Small Business Bank
Small Business Bank, established in 1984 as Gardner National Bank and subsequently renamed, is a state-chartered member bank of the Federal Reserve. With $100 million in assets, the bank caters to small and micro businesses, offering services such as checking and high-yield savings accounts, as well as business debit cards.
Steps Towards Compliance
As part of the cease and desist order, Gardner Bancshares and Small Business Bank have consented to specific requirements imposed by regulators. They are prohibited from declaring or paying dividends without approval from the Federal Reserve Board, the Federal Reserve Bank of Kansas City, and the Kansas Office of the State Bank Commissioner.
The bank and its holding company have been given 60 days to develop plans for improving board oversight, capital, liquidity management, internal controls, IT security, and AML/BSA compliance. Within 30 days, they must also hire a third party to assess corporate governance, board and management structure, and staffing needs.
In addition, the bank must conduct a loan book review, create a plan for enhancing loan and credit administration, and devise a strategy to mitigate distressed assets over the next four months. Furthermore, it must revise its methodology for determining credit loss allowances and undergo an internal audit.
Addressing Priority Areas
The Federal Reserve has set specific deadlines for improving interest rate risk management and third-party risk management, both of which are high-priority areas for federal regulators. Small Business Bank has 120 days to enhance its management of interest rate risk and submit a plan for improving third-party risk management. The bank must also develop a new business plan and budget for the remainder of the year.
Working Towards Compliance and Reporting Progress
Small Business Bank will need to regularly update regulators on the steps it takes to meet the requirements outlined in the cease and desist order and bring its operations into compliance. It is important to note tha
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