Office of the Inspector General Audit Reports

 

I ran across this material loss review of a failed bank, the National Bank of Commerce, in Berkeley, Illinois from 2009. That’s NBC as opposed to PNBC. It makes very good reading and helps explain why it is so easy for some banks to go broke. It also makes it easy to see why our government can go broke. Read the review here.

We can see, after such an audit, that everyone at the bank is forgiven, the OCC (Office of the Comptroller of the Currency), the oversight for the national banks, is forgiven, and the OIG, along with everybody else involved, realizes that making loans without adequate risk management and capital in place can be risky. Imagine that. So the bank is closed. The OCC does a study, and the OIG moves on to audit the next failed institution.

The audit from the National Bank of Commerce took 41 pages, apparently because of the material loss. Most of the failed bank reviews in 2012, that I have read, are only 7 pages. They cost the Deposit Insurance Fund less than $150M, so be brief. Short and sweet.

There are several significant differences in the Berkeley bank and CFNB. The main one seems to be that NBC, the Berkeley bank, bought loans in commercial real estate rather than making them. And I don’t know anything about any material loss.

Without knowing the real inside information, one could easily imagine CFNB going through a similar progression. Maybe a good insight as to what might be going on in similar banks.

I have added a link in the FYI link on the right hand side to the OIG site.

Several of the banks in these audits made the same bad decisions as did PNBC. It wasn’t their fault either. Closed. Study done. Move on.

An audit of the Solyndra $500+ million loan is part way down on the 2012 list. Treasury concluded that it was rushed in its consultation with Solyndra. Really? Not their fault.

One wind farm in LaSalle County seems to be doing ok with its $32M award. The report says, “Our audit objectives were to assess the eligibility and accuracy of that award by determining whether          (1) the property existed, (2) the property was placed into service during the eligible timeframe, and (3) the award amount was appropriate.” Amazing. What happens to the money if the property hadn’t existed? It’s a wonder.

15 comments on “Office of the Inspector General Audit Reports

  1. It looks just like what citizens Bank did. Overextend. Short reserves. Market collapses. Not their fault. It must be hell to go through this kind of oversight by the government, but they did it to them selves. I feel sorry for the new board members they didn’t know what they were walking into

    • Most senior management members had no idea of the commercial loans being booked in 2004-2006 because ALL of those decisions were made by Jim Miller. He had no oversight and the Board basically rubber-stamped everything he presented. Tony Sorcic was only concerned about how good the growth looked and not the quality of the underwriting which was terrible. It was those big commercial loan projects that have ultimately led to the Bank’s failure. Blame Jim and Tony because that’s where the credit goes.

      • I think those two including the Mortgage Banking VP were a little too preoccupied with a handful of female employees to spend much thought on underwriting. The residential department didn’t even have an underwriter on staff for years even though residential loans have a lot of regulatory guidelines and they were selling loans to Fannie and Freddie. I wonder how many of those loans they were forced to repurchase because they were not underwritten properly.

    • They don’t need to know banking. That is what the management and staff are for. The board just needs integrity, honesty, vision, and common sense. A lot of that was lacking, obviously.

  2. I think it would be helpful to understand the complexity of CRE loans and their valuation models. If you have no background in banking finance you are much more likely to rely on the bank employees with the background as the authoritative source which translates to very poor oversight.

    • That assumes Jim Miller actually knew what he was doing. He did not, but was so arrogant and defensive no one challenged him. The Directors Loan Committee at that time was a joke and will ultimately have to answer for this (along with Sorcic and Miller). Thanks Craig Wesner, you’re no leader

      • Oh but Jim was such a great leader with years of experience…..dont you remember the article in the paper about his so called “retirement”…..blahahahaha

  3. Here are dates from the above report on the failure of the National Bank of Commerce, Berkeley, Illinois:

    Nov. 3, 2008 – the OCC determined that the bank was critically undercapitalized.

    Jan. 16, 2009 – the bank was closed by the OCC and placed in receivership.

    The interval between those two events was less than the maximum 90 days allowed by OCC regs. Our bank, Citizens, is not guaranteed a 90-day grace period.

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