Federal regulators issued major enforcement actions on Friday. Three banks in Colorado; Bank of Choice, Signature Bank and Pueblo Bank and Trust; were given directives by the Federal Deposit Insurance Corporation (FDIC) to raise capital or risk being shut down. When a bank is issued a directive by the FDIC this means that the bank usually has three options. The first option is to sell enough voting shares of stock to raise capital. The second is to be acquired by another financial institution. The final option is to be shut down by the FDIC. Bank executives would rather issue more stock but many times that is unsuccessful because investors do not want to fund a failing bank. What will mostly likely happen is another financial institution will acquire the struggling banks thus taking advantage of customer base and deposits.
Below is more information about the Colorado banks.
Bank of Choice, which has 17 branch locations — including several in metro Denver — was categorized as “significantly undercapitalized” earlier this year by the FDIC after the bank reported a Tier 1 leverage capital ratio of 2.31 percent.
The FDIC defines banks as “adequately capitalized” if they have a Tier 1 risk-based capital ratio equal to or greater than 4 percent, and a Tier 1 leverage capital ratio equal to or greater than 4 percent. Tier 1 capital is the key measure of a bank’s strength and is comprised mainly of common stock and reserves.
Signature Bank in Windsor was given a directive on March 31 to become adequately capitalized within 30 days. The bank was notified by the FDIC on March 7 that it had become undercapitalized and was given 14 days to respond. The bank did not respond, the FDIC said.The bank was ordered to file a capital restoration plan with the FDIC by April 15, according to the March 31 document.
The Pueblo Bank and Trust Co., Pueblo, was ordered on March 18 to maintain a Tier 1 leverage capital ratio equal to or greater than 10 percent of the bank’s total assets and a Tier 1 risk-based capital ratio equal to or greater than 11 percent of the bank’s total risk-weighted assets. The Pueblo Bank also was ordered to establish a “reasonable” allowance for loan and lease losses, according to the FDIC consent order.