§ 305.1 Enforcement and supervisory standards.
(a) Scope. This section prescribes the definitions and standards for certain FDIC supervisory activities and enforcement actions against an institution that is an insured State nonmember bank, insured State licensed branch of a foreign bank, or an insured State savings association.
(b) Unsafe or unsound practices. For purposes of the FDIC's enforcement actions under 12 U.S.C. 1818 and supervisory activities, an “unsafe or unsound practice” is a practice, act, or failure to act, alone or together with one or more other practices, acts, or failures to act, that:
(1) Is contrary to generally accepted standards of prudent operation; and
(2) (i) If continued, is likely to—
(A) Materially harm the financial condition of the institution; or
(B) Present a material risk of loss to the Deposit Insurance Fund; or
(ii) Materially harmed the financial condition of the institution.
(c) Matters requiring attention. The FDIC may only issue a matter requiring attention to an institution for a practice, act, or failure to act, alone or together with one or more other practices, acts, or failures to act, that:
(1) (i) Is contrary to generally accepted standards of prudent operation; and
(ii) (A) If continued, could reasonably be expected to, under current or reasonably foreseeable conditions:
(1) Materially harm the financial condition of the institution; or
(2) Present a material risk of loss to the Deposit Insurance Fund; or
(B) Materially harmed the financial condition of the institution; or
(2) Is an actual violation of a banking or banking-related law or regulation.
(d) Harm to financial condition. Harm to financial condition refers to financial losses or other negative impacts to an institution's capital, asset quality, earnings, liquidity, or sensitivity to market risk.
(e) Tailored application required. (1) The FDIC will tailor its supervisory activities and enforcement actions based on unsafe or unsound practices under 12 U.S.C. 1818 and its issuance of matters requiring attention based on the risks associated with the institution's capital structure, complexity, activities, asset size, and any other financial risk-related factor that the FDIC deems appropriate.
(2) Tailoring required by this paragraph (e)(1) of this section includes tailoring with respect to the requirements or expectations set forth in enforcement actions based on unsafe or unsound practices under 12 U.S.C. 1818 and in matters requiring attention, as well as whether, and the extent to which, such actions and matters are taken or issued.
(3) As the risk associated with the factors identified in paragraph (e)(1) of this section increases:
(i) The threshold for materiality of the harm to the financial condition of an institution to take or issue an action or matter decreases;
(ii) The assessment of the harm to the financial condition of institution becomes more granular (e.g., specific business lines, products, or services); and
(iii) The requirements under the action or matter relating to remediation, and the expectations regarding prudent operation, increase.
(f) Basis for FDIC determinations. The FDIC will use objective facts and sound reasoning to determine whether, in accordance with paragraphs (b) through (e) of this section, the FDIC may take an enforcement action based on an unsafe or unsound practice under 12 U.S.C. 1818 or issue a matter requiring attention.
(g) Clarification regarding supervisory observations. (1) Paragraph (b) of this section does not apply to supervisory observations.
(2) A supervisory observation is an informal observation that does not rise to the level of a matter requiring attention, as described in paragraph (c) of this section, that identifies weaknesses in an institution's policies, practices, condition, or operations.
(3) A supervisory observation does not create a requirement or supervisory expectation that the supervisory observation will be presented to the institution's board of directors or that the institution will take corrective action in response to the supervisory observation.
(h) Other violations. An actual violation of a banking or banking-related law or regulation for which the FDIC does not take an enforcement action or issue a matter requiring attention is an other violation.
(1) The FDIC may require an institution to remediate an other violation.
(2) The FDIC may take such other actions as are required by law in connection with an other violation.