FDIC Sends Cease and Desist Order to Cross River Over Lending Practices

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Federal regulators have cited Crypto and FinTech-focused lender Cross River Bank.

The Federal Deposit Insurance Corp. (FDIC) issued a cease-and-desist order against the New Jersey-based bank due to its lending practices, the agency announced Friday (April 28).

According to an order from the FDIC, issued March 8, Cross River “engaged in the unsafe or unsound banking practices” in connection with fair lending rules by “failing to establish and maintain internal controls.”

PYMNTS has contacted Cross River for comment but has not yet gotten a reply. A spokesperson for the bank told Bloomberg News it expects the FDIC action won’t impact its growth, noting many of the enhancements required in the order were either complete or will be completed in the months ahead.

Among those changes, per the FDIC order: Cross River’s board must “increase its supervision and direction of management, and its oversight and monitoring of the bank’s internal controls, information systems, credit underwriting and internal auditing.

In addition, the bank must also get the FDIC’s consent before launching new credit products.

The FDIC’s action comes during a busy time for the agency as it deals with a series of banking failures.

Last week, the agency — along with the Federal Reserve and New York Department of Financial Services (NYDFS) — issued reports outlining the collapse of two of those banks: Silicon Valley Bank (SVB) and Signature Bank. 

According to the FDIC report, the liquidation of a third bank — Silvergate Bank — and the failure of SVB launched a fast-moving panic that brought down Signature due to its “poor management” and inadequate risk policing practices.

“The primary cause of SBNY’s failure was illiquidity precipitated by contagion effects…,” the FDIC wrote in its report. “However, the root cause of SBNY’s failure was poor management.”

“Signature’s response to this crisis was hampered by a control framework that did not develop in line with the bank’s growth, and a liquidity management plan that did not match the bank’s risk profile,” the NYDFS report said.

The FDIC also acknowledged shortcomings within its own department, blaming a lack of staff in its New York office on the “high cost of living in New York, competition from other regulators and private sector firms that can pay more for talent than the federal government.”

As PYMNTS wrote last week, observers believe that these critical reports suggest a forthcoming tightening of bank regulations, though it could take years to implement those changes.