Board of Governors of the Federal Reserve System

Section 612 of the Dodd-Frank Act states that absent a statutory exception:

"The Comptroller of the Currency may not approve the conversion of a State bank or State savings association to a national banking association or Federal savings association during any period in which the State bank or State savings association is subject to a cease and desist order (or other formal enforcement order) issued by, or a memorandum of understanding entered into with, a State bank supervisor or the appropriate Federal banking agency with respect to a significant supervisory matter or a final enforcement action by a State Attorney General."

Section 612 is designed to limit regulatory arbitrage, the practice of "charter shopping" by banks to avoid robust supervision and enforcement actions. Section 612 removes the ability of a bank to automatically change charters when it faces tough scrutiny or enforcement actions.  Any request for a statutory exception should be viewed in light of these objectives and should rarely be granted unless there are compelling reasons to do so. I do not believe the request for this charter conversion has made a compelling argument. The issues raised by the public enforcement action include quite serious problems regarding the bank's anti-money laundering and terrorist financing practices.