Revealing the recession's rising toll on financial firms, the Federal Deposit Insurance Corp. disclosed Friday that it had ordered six more California banks to clean up their acts in February after the agency examined their books and operations.
The banks -- two in Los Angeles County, two in Riverside County, and one each in Stockton and La Jolla -- received "cease and desist" orders that spell out publicly what the banks must do, such as boost capital levels, beef up management and rein in risky loans.
The number of such regulatory actions has been increasing rapidly.
The FDIC, a primary regulator of many state-chartered banks as well as the guardian of federally insured deposits, has announced 10 public enforcement actions against California banks and bankers in the first two months of this year, compared with 24 in all of 2008 and no more than seven in each of the preceding three years.
By the end of 2009, two-thirds of the state's banks will be operating under cease-and-desist orders or other regulatory actions, Anaheim-based banking consultant Gary S. Findley predicts.
"While it is not quite Sherman's march to the sea, the examination process for most has been disappointing, brutal, contentious and the basis of severe frustration among the bankers," Findley writes in a newsletter to be published next week.
Most banks targeted in such actions eventually tighten up operations and continue in business or merge with stronger institutions, but regulators are preparing for a major wave of failures.
The FDIC recently began working to hire as many as 600 employees to liquidate the assets of failed banks in the West from a new office in Irvine. FDIC chief Sheila Bair predicts that failures will cost the federal deposit insurance fund $65 billion over the next five years.
To keep the fund sound, the FDIC is raising premiums on the insured banks and thrifts that pay into the fund, which because of failures dropped from $34 billion on Sept. 30 to $18.8 billion on Dec. 31. The fund can borrow from the U.S. Treasury, so there is no chance it could run dry, FDIC officials have stressed.
In addition to public cease-and-desist orders, banks are subject to a variety of regulatory sanctions, including so-called memorandums of understanding, which are informal directives to correct problems. Regulators don't release those memos, but banks sometimes disclose them to shareholders.
