### The HONORABLE CAROL E. JACKSON, United S tates District Judge * 

### for the Eastern District of Missouri, sitting by designation. No. 95-3346

THE GREENE COUNTY BANK, * * Petitioner, * * v. * On Petition for Review of * Decision and Order of the FEDERAL DEPOSIT INSURANCE CORP., * Federal Deposit Insurance * Corporation Respondent. *

Submitted: June 14, 1996 Filed: August 7, 1996

Before MORRIS SHEPPARD ARNOLD and MURPHY, Circuit Judges, and JACKSON , District Judge.

* JACKSON, District Judge. The Greene County Bank appeals a cease and desist order issued by the Board of Directors of the Federal Deposit Insurance Corporation ("FDIC"). The order requires th e Bank to comply with a February 12, 1992 Memorandum of Understanding ("MOU") regarding certain activities in the futures and securities markets, and was prompted by the alle ged failure of the Bank to comply wit h the MOU. The Bank attacks the order as not supported b y substantial evidence and as arbitrary and capricious. The Bank also argue s that the FDIC applied an incorrect standard in determining that the Bank engaged in unsafe and unsound practices. We uphold the cease and desist order.

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I. BACKGROUND The FDIC initiated an administrative action against the Bank pu rsuant to 12 U.S.C. § 1818(b) on July 26, 1993 by issui ng a Notice of Charges and Hearin g. Following a three-day hearing, an Administrative Law Judg e ("ALJ") recommended against the issuance of a cease and desist order. Upo n review of the ALJ's d ecision, the FDIC Board found failures of compliance that constituted violations of the MOU and the FDIC Policy Statement a s well as unsafe and unsound practices. As a resul t, the FDIC issued a cease and desist order requiring the Bank to comply wi th the MOU and FDIC Policy Statement.

II. DISCUSSION In considering the Bank's challenge to the sufficiency of th e evidence to support the cease and desist order, our review is limited to a determination of whether the agency decision i s supported by substantial evidence on the record as a whole. Northwest National Bank v. United State s Dept. of the Treasury , 917 F.2d 1111 (8th Cir. 1990); First Nat'l Bank of Ede n v. Dept. of the Treasury , 568 F.2d 610, 611 (8th Cir. 1978)

. Substantial evidence "is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Culbertson v. Shalala , 30 F.3d 934, 939 (8th Cir

. 199 4). In reviewing the agency decision, we consider the entire record , including the ALJ's recommendation. Simon v. Simmons Food, Inc. , 49 F.3d 386, 389 (8th Cir. 19 95). If the agency departs from the findings of the ALJ, it mu st show that it gave "attentive consideration" to the ALJ' s conclusions. Id . at 390.

At iss ue in this case is whether the process by which the Ban k engage d in futures and securities market activities complied with th e procedures set forth in the MOU. The MOU requires the Bank to (1) develop written policies for addressing interest rate risk exposure and governing the use of futures to reduce interest rate risk and (2) provide detailed justification each time the Bank uses

### Section 1(a) of the MOU requires the Ban k, within 30 days of 1 

### the date of the MOU, to develo p a written plan of action to reduce the bank's interest rate risk exposure. Section 1(b) requires the Bank to adopt a written policy governing the use of future s contracts as a method for reducing interest rate risk whic h incorporates the requirements of the FDIC Policy Statement. Section 1(b) also requires the Bank to perform specific analyses each time it uses futures to reduce interest rate risk. Section 1(c) r equires the Bank, within 30 days of the date of the MOU, to devise a n interest rate risk exposure/rate sensitivity policy.
3 futures to reduce interest rate risk. The MOU also incorporates the FDIC 1 Policy Statement which, in part, requires the Ba nk's board of directors to approve any plan to engage in futures market activities. In his recommende d decision, the ALJ concluded that the Bank had complied with the MOU i n material respects but had not adopted an investment policy in compliance with Section 1(c). T he ALJ, however, did not recommend the issuance of a
cease and desist order. In its reversal of the ALJ decision, the FDIC foun d that the Bank had in fact failed to adhere to the MOU requirements b y
en gaging in futures and securities market transactions without prio r approval by the Bank' s board of directors and without proper analysis and documentation. The FDIC concluded that in light of the risks involved in these types of transactions, complete compliance with the MOU was required , and the cease and desist order was necessary to ensure such compliance.
The record shows that the Bank failed to comply with the terms of the MOU and t he FDIC Policy Statement when it did not properly document an d obtain approval of the acquisition of a number of spread positions. The Bank began acquiring these positions in the Fall of 1992. However, these investments were not formally approved by the Board until March 29, 1993, months af ter they were made. The only document in the record whic h conta ined the Bank's explanation of its strategy for this type o f investmen t was undated. The FDIC concluded that to the extent that an y docume nts contained language that could be construed as authorizing th e acquisition of these spread positions, such language was too vague

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to comply with the requirements of the FDIC Policy Statement. The testimon y of the FDIC examiner in charge supports this conclusion.

The FDIC's decision was also based on substantial evidence o f deficiencies regarding the Bank's calculation and analysis of interest rat e risk exposure. The evidence revealed that the Bank did not calculate and
ana lyze its interest rate risk exposure on a regular basis as the MO U required. Although th e ALJ believed that this deficiency could be excused because the Bank was receiving gap analyses measuring the exposure from th e FDIC and other examiners, clearly the terms of the MOU required regula r monitoring by the Bank.

After reviewing the record as a whole, we find that the FDIC' s determination that th e Bank failed to fully comply with the conditions of the MOU is supported by substantial evidence.
The Bank also attacks as arbitrary and capricious the FDIC's de cision to issue a cease and desist order. Our review of the remedy imposed by th e FDIC to ad dress unsafe and unsound banking practices is limited. Th e remedy ma y not be set aside unless it is "arbitrary, capricious, o r otherwise contrary to law." Currie State Bank v. FDIC , 878 F.2d 215, 218 (8th Cir. 1989). Purs uant to 12 U.S.C. § 1818(b)(1), the FDIC may issue a
cease and desist order to prevent a bank from engaging in unsafe or unsoun d practices. Proof of misconduct alone entitles the FDIC to invoke its broa d
cease and desist enforcement powers. Oberstar v. FDIC , 987 F.2d 494, 502 (8th Cir. 1993).

In this case, the FDIC concluded that the Bank's failure to compl y with the MOU constituted an unsafe and unsound banking practice, justifyin g the issuance of a cease and desist order. As discussed above, the record contai ns substantial evidence to support the agency's decision. Upo n finding an unsafe and unsound banking practice, the FDIC may require a ban k to "take affirmative

### The cease and desist order requires the Bank, within 30 days 2 

### of the date of the order, to submit documentation showing th e Bank's full compliance with th e MOU and FDIC Policy Statement. The cease and desist order also requires the Bank to calculate i nterest rate risk exposure on a quarterly basis.
5 action to correct the conditions resulting from any such . . . practice." 12 U.S.C. § 1818(b)(1). The requirements imposed by the cease and desist order constitute the type of affirmative action that is authorized by the statute. See Eden , 568 F.2d at 611 n.1 (upholding cease and desist order

2 to add ress the failure to implement internal controls and auditin g procedures). Based on the foregoing, we conclude that the choice of remed y by the FDIC in this case was not arbitrary and capricious.
Finally, the Bank argues that the FD IC applied the wrong standard in determining that the Bank's failure to comply with the MOU constituted an unsafe and unsound practice. The Bank argues that application of th e "un safe and unsound practice" standard is limited to practices having a reasonably direct effect on the Bank's financial soundness, a situation no t present in this case. See Matter of Seidman , 37 F.3d 911 (3rd Cir. 1994); Hoffman v. FDIC , 912 F.2d 1172 (9th Cir. 1990); Gulf Federal Savings & Loa n
v. FHLBB , 651 F.2d 259 (5th Cir. 1981), cert. denied , 458 U.S. 1121 (1982)

. It is well-settled in this Circuit, however, that an "unsafe or unsoun d practi ce" exists where the conduct is "deemed contrary to accepte d standards of banking operations which might result in abnormal risk or los s to a banking institut ion or shareholder." Eden , 568 F.2d at 611 n.2. See also Oberstar , 987 F.2d at 502. We conclude that the FDIC in this cas e applied the appropriate standard to determine whether the challenged actio n constituted an "unsafe or unsound practice."
The August 1, 1995 Decision and Orde r of the FDIC Board of Directors is affirmed.

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A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.