Pub. 3 2015 Issue 4

17 Winter 2015 The Community Banker practice. Although the OCC adopted Enforcement Coun- sel’s arguments and disagreed with the ALJ it terminated the enforcement action without a reason as to why. One can only speculate why the OCC did not continue the enforcement action. This author believes the OCC may have wanted to ex- press its views without leaving the door open for an appeal to the circuit court. The OCC’s Decision The Comptroller of the Cur- rency, Thomas J. Curry, a former FDIC Director and current Chair- man of the Federal Financial In- stitutions’ Examination Council, reaffirmed the OCC’s interpre - tation of the phrase “unsafe or unsound practice” within the meaning of the enforce- ment provisions of the Federal Deposit Insurance Act (“FDI Act”). Interestingly, the FDI Act contains no definition of the phrase. The definition adopted by the OCC and other Federal banking agencies derives from material provided to Congress in 1966 by John E. Horne, then Chairman of the Federal Home Loan Bank Board. Chairman Horne described the term as: any action, or lack of action, which is contrary to generally accepted standards of prudent operation, the possible conse- quences of which, if continued, would be abnormal risk or loss or damage to an institution, its shareholders, or the agencies administering the insurance funds. The OCC and the Federal banking agencies have consis- tently relied on the definition provided by Chairman Horne when bringing enforcement actions. The courts, however, have not uniformly applied this definition and thus have creat - ed some confusion within the industry. Some appellate courts have applied a more restrictive definition than Horne. The ALJ in the Adams case followed the decisions that applied the more restrictive definition that defined “unsafe or unsound practices” as: conduct that, at the time it was engaged in, was contrary to generally accepted standards of prudent operation (that is, it constituted an imprudent act), the possible consequences of which, if continued, created an abnormal risk or loss or damage to the financial stability of the Bank. Comptroller Curry rejected this definition and, in doing so, removed an often-used defense from future enforcement ac- tions. Banks can no longer suc- cessfully argue that the alleged conduct is not subject to en- forcement because the conduct did not create an abnormal risk to the bank’s financial stabil - ity. In the past banks argued that since the institution was financially sound the alleged imprudent conduct was not actionable because it posed no risk to financial stability. Conclusion Although this decision comes from the OCC it will impact all federally insured financial institutions that face enforcement actions. It will be interesting to see if the OCC’s decision is the last word on the definition of “unsafe or unsound practice” or, if the issue will be addressed in future cases before circuit courts of appeal or possibly the United States Supreme Court. Until then it is best practice to heed the OCC’s definition and avoid conduct that would be abnor- mal risk, loss or damage to an institution, its shareholders, or the agencies administering the insurance funds. Philip S. Chiaviello is an attorney in Livingston, Montana practicing banking, litigation, and regulatory law. He recently completed a 3½ year appointment as counsel to the FDIC in Chicago and Wash- ington, DC. Prior to joining the FDIC, Mr. Chiaviello was a litigator in Chicago since 1983 where he represented a broad variety of commercial and business clients. Mr. Chiaviello has dedicated his current law practice to serving Montana community banks. You may reach him at PhilipC672@ aol.com or visit his web site, www.mon- tanabankinglawyer.com . ICBA_7347_WPS_H_Page HORIZ.indd 1 12/9/14 4:28 PM