When Permission is Better (and Less Expensive) than Forgiveness

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With more community banks operating under supervisory agreements with their regulators, it is important to remember that failure to secure prior approval for certain actions may result in regulatory sanctions, including civil money penalties. An ounce of prevention may avoid a pound of regulatory “cure.”

Change in Executive Officer or Director

A bank operating under a formal supervisory action is prohibited from adding new executive officers or directors without the prior approval of the bank’s regulators. In some instances, informal supervisory actions may also include this restriction. The agencies have a process by which, under certain circumstances, a bank may request a waiver of prior approval of these additions to key management and boards of directors. A formal request for a waiver is required but in many instances, the agencies will permit a bank to allow the new senior officer to function in that role while the agencies consider the formal Section 32 application. However, failure to request this waiver will result in regulatory criticism and possible sanctions.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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