Banking and Finance Law Daily Wrap Up, FINANCIAL STABILITY—FDIC directive flags ‘severely undercapitalized’ Old Glory with restrictions, requirements, (Sep 28, 2026)
By Jeff Williams
The directive remains enforceable until Old Glory maintains adequate capitalization on average for four consecutive quarters.
The Federal Deposit Insurance Corporation has issued a supervisory prompt corrective action directive to Old Glory Bank that includes, among numerous provisions, a requirement that the bank, which has been deemed to be significantly undercapitalized, submit an updated capital restoration plan to the FDIC and that it not make any capital distribution if doing so would make it undercapitalized under section 38(d)(1) of FDIC Act.
The FDIC said in the directive (FDIC-26-0037PCAS) that it took the action based upon the bank’s Consolidated Report of Condition and Income of the Bank as of June 30, 2026, showing its leverage ratio to be 2.69 percent and after Old Glory did not respond to a notice that the FDIC intended to issue the supervisory prompt corrective action directive. All of the directive’s provisions will remain in effect until Old Glory has “adequately capitalized on average for four consecutive calendar quarters, except to the extent that any provision has been modified, terminated, suspended, or set aside by the FDIC,” the directive said.
Other provisions in the directive call for the bank to not pay any management fees to any person having control of the bank if doing so would result in the bank being undercapitalized and requires that the aggregate liability of all companies have control of the bank to be the lesser of 5 percent of Old Glory’s total assets at the time the bank became undercapitalized or the "amount which is necessary (or would have been necessary)” to bring it into compliance with “all capital standards applicable with respect to such Bank as of the time the Bank fails to comply with the updated capital restoration plan.”
Other requirements in the directive include that the bank must also comply with “all prompt corrective action provisions” mandated by section 38 of the FDIC Act, including but not limited to the following:
Restricting the Old Glory from permitting its average total assets during any calendar quarter from exceeding its average total assets during the preceding calendar quarter, unless the agency has accepted the bank’s updated capital restoration plan; any increase in total assets is “consistent with the updated capital restoration plan”; and Old Glory’s “ratio of tangible equity to assets increases during the calendar quarter at a rate sufficient" to enable it to become adequately capitalized within a “reasonable time;” or
Requiring prior approval by the FDIC before the bank “directly or indirectly, acquires any interest in any company or insured depository institution, establishes or acquires any additional branch office, or engages in any new line of business," unless the FDIC has “accepted the insured depository institution’s updated capital restoration plan, the bank is implementing the plan, and the FDIC determines that the proposed action is consistent with and will further the achievement of the plan”; or the "Board of Directors determines that the proposed action will further purpose of this action.”
Other requirements in the directive include that the bank “shall not accept, renew or roll over any brokered deposits” and that it is prohibited from accepting employee benefit deposits until it is “at least Adequately Capitalized” in accordance with the FDIC Act. The FDIC is also requiring Old Glory to sell “enough shares or obligations of the Bank so that the Bank will be adequately capitalized after the sale, and that such instruments which are sold be voting shares” and that the bank “accepts an offer to be acquired by a depository institution holding company, or to combine with another insured depository institution, if one or more grounds exist for appointing a conservator or receiver for the Bank.”
The directive also requires Old Glory to restrict transactions between affiliates, restrict the interest rate the bank pays on deposits to “prevailing rates of deposits of comparable amounts and maturities in the region where the Bank is located,” and that the bank or any of its subsidiaries alter, reduce, or terminate any activity that the FDIC determines poses “excessive risk” to the bank.
The FDIC action also directs that:
the “bank divests itself of or liquidates any subsidiary if the FDIC determines that the subsidiary is in danger of becoming insolvent and poses a significant risk to the Bank, or is likely to cause a significant dissipation of the Bank’s assets or earnings;”
the “bank holding company having control of the Bank divests itself of or liquidate any affiliate other than an insured depository institution if the Board of Governors of the Federal Reserve System for that company determines that the affiliate is in danger of becoming insolvent and poses a significant risk to the Bank, or is likely to cause a significant dissipation of the Bank’s assets or earnings;” and
the "bank holding company divests itself of the Bank if the Board of Governors of the Federal Reserve System for that company determines that divestiture would improve the Bank’s financial condition and future prospects.”
RegulatoryActivity: BankingOperations FinancialStability