On August 15, 2017, the Federal Deposit Insurance Corporation (FDIC) Office of Inspector General (OIG) issued a Material Loss Review report on the failure of Seaway Bank and Trust Company, Chicago, Illinois, an institution that failed on January 27, 2017, resulting in a $57.2 million loss to the Deposit Insurance Fund (DIF). Our report discusses the causes of Seaway Bank’s failure and the resulting material loss to the DIF, and evaluates the FDIC’s supervision of Seaway, including the FDIC’s implementation of the Prompt Corrective Action (PCA) provisions of section 38 of the Federal Deposit Insurance Act. The scope of our review included 2009 through Seaway’s failure. Reviewing this period allowed us to evaluate Seaway’s history before and after it acquired assets from two failed banks and changes that occurred to Seaway’s Board of Directors and management.
We concluded that Seaway failed as a result of poor corporate governance and risk management practices. With respect to supervision, we found that the FDIC conducted examination activities, as required, and properly implemented applicable PCA provisions. The report does not contain any formal recommendations, but we concluded that it would have been prudent for the Division of Risk Management Supervision (RMS) to have participated in a 2012 state examination of Seaway or conducted a separate visitation in 2012 to assess Seaway’s accounting for the acquired failed bank assets. While it was permissible by the FDIC Rules and Regulations for RMS to forego participation in the state examination, in our opinion, RMS missed an opportunity to see firsthand how the institution was managing and accounting for its acquisition of failed bank assets at a critical time.