Bank Supervision: Closure of the Rushville National Bank (Letter Report,
06/15/98, GAO/GGD-98-80).

Pursuant to a congressional request, GAO reviewed the events leading up
to the 1992 closure of the Rushville National Bank by the Office of the
Comptroller of the Currency (OCC), focusing on whether OCC followed its
policies and procedures in its: (1) net worth calculation and loan
classifications, which led to Rushville's being declared insolvent; (2)
decision to close the bank before implementation of the Federal Deposit
Insurance Corporation Improvement Act (FDICIA); (3) contacts with the
bank that recalled a loan to Rushville's holding company; (4)
determination of civil money penalties assessed against the former
Rushville chairman and directors; and (5) involvement with the proposed
sale of Rushville holding company stock by Rushville's suspended
chairman.

GAO noted that: (1) during its review, it found that OCC properly
calculated Rushville's net worth; (2) also, GAO did not find evidence
that OCC's loan classifications or insolvency determination were
improper; (3) although some calculations and classifications were based
to a great extent on examiner judgment, the examiners' net worth
calculation and loan classifications followed OCC procedures; (4)
however, GAO's review of loan classifications was made more difficult by
the lack of certain documentation; (5) GAO determined that FDICIA's
prompt corrective action provisions would not have allowed Rushville to
remain open longer; (6) Congress enacted FDICIA to eliminate delays in
the closure of problem institutions, and OCC officials told GAO that,
for that reason, even if they had not had a pre-FDICIA basis to close
Rushville, they would have closed the bank without delay once FDICIA was
implemented; (7) in GAO's review of OCC electronic mail and related
documents, it found no support for the allegation that OCC tried to
close Rushville by seeking to influence the recall of a loan made by a
creditor bank to Rushville's holding company; (8) OCC officials and
officers of the creditor bank told GAO that OCC never attempted to
influence the recall of the holding company loan; (9) officers of the
creditor bank told GAO that they first sought repayment of the loan in
1990 because the Rushville bank stock that collateralized the loan was
of questionable value and they doubted the Rushville chairman's capacity
to repay the loan; (10) regarding the penalties assessed against
Rushville directors, GAO found that OCC followed its policies and
procedures; (11) however, in a number of instances in the 1990s, the
penalties ultimately assessed by OCC were higher than those originally
proposed by district officials; (12) while documentation was
insufficient for GAO to ascertain how the OCC amounts were determined,
OCC procedures allow for such penalty adjustments when circumstances
warrant; (13) GAO found no evidence substantiating the Rushville
directors' assertion that an OCC official told the Rushville chairman
during the meeting at which he was suspended that he could not sell his
stock; and (14) moreover, when OCC became aware of the misunderstanding,
OCC sent a letter to the chairman stating that he could sell his stock
subject to OCC approval.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-98-80
     TITLE:  Bank Supervision: Closure of the Rushville National Bank
      DATE:  06/15/98
   SUBJECT:  Bank examination
             Bank management
             Banking regulation
             Bank holding companies
             Bank failures
             Internal controls
             Bank loans
             Loan repayments
             Fines (penalties)
             Insured commercial banks
IDENTIFIER:  Bank Insurance Fund
             BIF
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Government Reform and Oversight,
House of Representatives

June 1998

BANK SUPERVISION - CLOSURE OF THE
RUSHVILLE NATIONAL BANK

GAO/GGD-98-80

Closure of the Rushville National Bank

(233534)


Abbreviations
=============================================================== ABBREV

  FDIC - Federal Deposit Insurance Corporation
  FDICIA - Federal Deposit Insurance Corporation Improvement Act
  FIRREA - Financial Institutions Reform, Recovery, and Enforcement
     Act
  OCC - Office of the Comptroller of the Currency

Letter
=============================================================== LETTER


B- 278532

June 15, 1998

The Honorable Dan Burton
Chairman, Committee on Government
 Reform and Oversight
House of Representatives

Dear Mr.  Chairman: 

This letter responds to your August 1, 1997, request for an
independent review of the events leading up to the 1992 closure of
the Rushville National Bank (Rushville) by the Office of the
Comptroller of the Currency (OCC).  Accordingly, we reviewed whether
OCC followed its policies and procedures in its (1) net worth
calculation and loan classifications, which led to Rushville's being
declared insolvent; (2) decision to close the bank before
implementation of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA);\1 (3) contacts with the bank that recalled
a loan to Rushville's holding company; (4) determination of civil
money penalties assessed against the former Rushville chairman and
directors (hereafter referred to as Rushville directors); and (5)
involvement with the proposed sale of Rushville holding company stock
by Rushville's suspended chairman. 

To respond to your request, we interviewed officials of OCC, the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve,
and the Department of Justice.  We also met with Rushville directors
and reviewed over 100 boxes of documents concerning Rushville, which
were maintained by OCC and FDIC, as well as other related material. 
We also reviewed documents that we obtained from the Federal Reserve
and Rushville directors.  See appendix I for a detailed discussion of
our scope and methodology. 


--------------------
\1 P.L.  102-242, 105 Stat.  2236 (1991). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

During our review, we found that OCC properly calculated Rushville's
net worth.  Also, we did not find evidence that OCC's loan
classifications or insolvency determination were improper.  Although
some calculations and classifications were based to a great extent on
examiner judgment, the examiners' net worth calculation and loan
classifications followed OCC procedures.  However, our review of loan
classifications was made more difficult by the lack of certain
documentation. 

We determined that FDICIA's prompt corrective action
provisions--which went into effect the day after Rushville was
closed--would not have allowed Rushville to remain open longer. 
Congress enacted FDICIA to eliminate delays in the closure of problem
institutions, and OCC officials told us that, for that reason, even
if they had not had a pre-FDICIA basis to close Rushville, they would
have closed the bank without delay once FDICIA was implemented. 

In our review of OCC E-mail and related documents, we found no
support for the allegation that OCC tried to close Rushville by
seeking to influence the recall of a loan made by a creditor bank to
Rushville's holding company.  OCC officials and officers of the
creditor bank told us that OCC never attempted to influence the
recall of the holding company loan.  Officers of the creditor bank
told us that they first sought repayment of the loan in 1990 because
the Rushville bank stock that collateralized the loan was of
questionable value and they doubted the Rushville chairman's capacity
to repay the loan. 

Regarding the penalties assessed against Rushville directors, we
found that OCC followed its policies and procedures.  However, in a
number of instances in the 1990s, the penalties ultimately assessed
by OCC were higher than those originally proposed by district
officials.  While documentation was insufficient for us to ascertain
how the OCC amounts were determined, OCC procedures allow for such
penalty adjustments when circumstances warrant. 

We found no evidence substantiating the Rushville directors'
assertion that an OCC official told the Rushville chairman during the
meeting at which he was suspended that he could not sell his stock. 
Moreover, when OCC became aware of the misunderstanding, OCC sent a
letter to the chairman stating that he could sell his stock subject
to OCC approval. 


   BACKGROUND
------------------------------------------------------------ Letter :2

OCC closed Rushville on December 18, 1992, on the basis of its
determination that the bank had a negative net worth of about
$326,000 and thus was insolvent.  At the time, Rushville was a
two-branch bank with $38 million in assets.  During that same year,
OCC also closed 15 other small U.S.  banks with assets under $50
million. 

Rushville had been the subject of OCC scrutiny since at least 1978
when it entered into a memorandum of understanding with OCC in which
Rushville directors agreed to correct such insider abuses as
excessive insider fees and overdraft payments to directors.  The
Rushville directors consented to an OCC cease-and-desist order in
June 1983 directing the bank to correct unacceptable lending
practices, and the directors consented to an amended order OCC issued
a year later in response to questionable expense payments to
insiders.  In 1984, OCC took the first of four civil money penalty
actions against several Rushville directors on the basis of
violations of banking laws.  Finally, on November 12, 1992, OCC
suspended the chairman from participating in the affairs of the bank
for engaging in unsafe and unsound practices, and, on December 11,
1992, all but one bank director resigned from the board.  Appendix II
shows key events affecting Rushville, with a focus on events
surrounding OCC's closure of the bank. 

OCC assessed 14 Rushville directors civil money penalties totaling
$374,000 from 1984 to 1993.  OCC based these penalties on the
individuals' having undertaken prohibited actions, such as improper
payments of Rushville directors' legal fees; multiple violations of
limits on loans to executive officers; and illegal loans to its
holding company.  When we completed our audit work in April 1998,
civil money penalties of $295,000 assessed against bank directors had
not been paid. 

From the mid-1980s until after Rushville's closure, Rushville
directors initiated a number of lawsuits seeking redress in the
federal courts for what the directors believed were wrongful actions
by federal banking regulators.  In response to OCC's 1985 civil money
penalty assessment, the directors initially requested an
administrative hearing to contest the penalties, but subsequently
requested that OCC's civil money penalty assessment be dismissed. 
The directors asserted that OCC did not have the authority to assess
these civil money penalties.  When the administrative law judge
denied the request for dismissal, the directors unsuccessfully filed
suit in the district court questioning OCC's authority to assess
civil money penalties.\2

When the court found that it lacked jurisdiction to hear the case,
the directors again requested an administrative hearing.  The
administrative law judge upheld the original penalty assessment.  In
June 1989, at the end of the administrative process, OCC imposed the
penalties.  The directors unsuccessfully appealed OCC's decision to
the Seventh Circuit Court of Appeals and the Supreme Court.\3

In 1994, the directors filed suit in district court seeking money
damages from the government for various common law and constitutional
torts alleging that OCC violated the Administrative Procedure Act
when it closed Rushville.  The case was dismissed by the district
court and the appeal at the Seventh Circuit Court of Appeals was
dismissed. 

Subsequently, the directors filed three suits seeking redress.  One
suit alleged violations of the constitutional due process rights of
Rushville's directors by individual OCC officials.\4

Another suit appealed OCC's imposition of penalties and restitution
in the early 1990s.\5 Both suits were dismissed by the courts.  The
remaining suit seeking compensation for OCC's seizure of the bank as
a taking under the Fifth Amendment is still pending.\6


--------------------
\2 The district court found that the law (12 U.S.C.  1818(h))
establishes a review procedure that allows an individual to request
an administrative hearing to review the assessment.  The individual
may then appeal an unfavorable administrative ruling to the court of
appeals.  The court found that the only exception to this appeal
process exists where the actions of the Comptroller of the Currency
clearly depart from his statutory authority.  Abercrombie v.  Clarke,
641 F.  Supp.  598 (S.D.  Ind.  1986); aff'd 833 F.2d 672 (7th Cir. 
1987). 

\3 Abercrombie v.  Clarke, 920 F.2nd 1351 (7th Cir.  1990), cert. 
denied 112 S.  Ct.  52 (1991). 

\4 Hoosier Bancorp v.  Rasmussen, 90 F.  3d 180 (7th Cir.  1996). 

\5 Snyder v.  Board of Governors of the Federal Reserve System, No. 
96-1403 (D.C.  Cir.  May 8, 1997). 

\6 Hedrick v.  United States, No.  95-684C (Ct.  Cl.  filed Oct.  16,
1995). 


   NO EVIDENCE FOUND THAT OCC'S
   NET WORTH CALCULATION AND LOAN
   CLASSIFICATIONS WERE IMPROPER
------------------------------------------------------------ Letter :3

Rushville directors have questioned whether OCC followed its policies
and procedures in closing Rushville and have alleged that OCC
misclassified performing loans during its last examination to make it
appear that the bank was insolvent.  Accordingly, you asked us to
review whether OCC followed its policies and procedures in its net
worth calculation and loan classifications during its final
examination before Rushville's closure.  Although our in-depth review
of 25 problem loans found that many loan classifications were not
well documented, we found that, except for the lack of documentation,
examiners followed established OCC procedures and generally accepted
accounting principles in their net worth calculation and loan
classifications. 


      GAO'S REVIEW OF OCC'S NET
      WORTH CALCULATION
---------------------------------------------------------- Letter :3.1

Our review found that OCC's net worth calculation showing that
Rushville was insolvent by about $326,000 was essentially based on
examiners' determination that the bank lacked sufficient equity to
cover estimated loan losses from problem loans.  Documentation from
past examinations and interviews indicate that, over the previous
decade, OCC had been critical of Rushville's allowance for loan
losses, which represented a reserve for bad debts.  In 1983, the
directors consented to an OCC cease-and-desist order that required
Rushville to maintain a capital ratio of 7 percent.\7 In December
1992, Rushville's capital ratio was at minus 1 percent, which was
well below the level required by the cease-and-desist order. 

Following generally accepted accounting principles, OCC examiners
determined Rushville's net worth during the December 1992 examination
by valuing its loan portfolio and then determining the amount of
equity the bank should be setting aside to absorb losses.  By
comparing the two amounts, the examiners determined that Rushville
lacked sufficient bank equity to cover loan losses.  Table 1 shows
the calculation that OCC used to make its determination. 



                                Table 1
                
                  OCC's Calculation of Rushville's Net
                      Worth (as of Dec. 17, 1992)

Calculation                                                     Amount
------------------------------------------------------  --------------
1. OCC charge-offs to allowance\\a                            $694,858
2. OCC calculated general reserve\\b                           319,549
3. OCC calculated specific reserves\c                          736,800
4. Total: OCC required allowance for loan losses (Add        1,751,207
 lines 1, 2, and 3)\d
5. Less: Rushville's allowance for loan losses\d               626,706
6. Total: Required provision for loss (Subtract line 5       1,124,501
 from line 4)
7. Reversal of interest and expenses\ previously               304,578
 recorded\e
8. OCC calculated other real estate disposition                 42,924
 reserves\f
9. Total: Equity required (Add lines 6, 7, and 8)            1,472,003
10. Less: Bank equity\g                                      1,145,214
11. Total: Equity capital deficit (Subtract line 10         ($326,789)
 from line 9)
----------------------------------------------------------------------
\a Charge-offs represent loans removed from the asset balances in the
accounting records because the probability of collection for such
loans is remote.  When a charge-off occurs, a corresponding amount of
the allowance for losses is also removed or a current provision for
loss is charged against income. 

\b A reserve for general losses in a bank's loan portfolio.  The size
of the reserve is based on historical loss rates for different loss
categories of classified loans. 

\c A reserve for specific loans where collection in full is highly
questionable. 

\d A reserve of funds to absorb estimated loan losses from the
problem assets of a bank's loan and lease portfolio. 

\e An adjustment to reverse interest receivable on loans where
receipt of future interest payments is unlikely and to reverse
expenses that the bank has not paid. 

\f A reserve for other real estate owned--real estate Rushville
acquired by default from borrowers who were not able to meet their
loan payments--to adjust the value to market value and to account for
the costs of disposing of the asset. 

\g Represents capital stock, bank surplus, undivided profits, and
gross earnings. 

Source:  OCC. 

We reviewed OCC workpapers from the final examination of Rushville
and traced the amounts shown in table 1 back to the bank's accounting
records, and we met on several occasions with OCC officials to
discuss the net worth calculation.  After reviewing the OCC
calculations, we found OCC's determination to be appropriate.  In a
few instances, we found that OCC examiners chose to apply less
stringent bases for their net worth calculation than they might have
applied.  For example, when OCC examiners calculated Rushville's
general reserve, they chose to use a 3-year average (1989 through
1991), which resulted in a lower general reserve amount.  Examiners
could have used the 3-year period of 1990 through 1992--the year of
Rushville's closure--which would have increased the reserve
requirements by $53,000.  However, examiners used the earlier 3-year
average because they wanted to use a period that would not be
influenced by their 1992 loan classifications. 

The largest OCC adjustment during the December 1992 net worth
calculation was the $736,800 that examiners established for specific
reserves, as shown in table 1.  Examination records indicated that
OCC examiners based this adjustment on their judgments (1) that
borrowers were unlikely to repay some questionable loans and (2) that
the supporting collateral was weak.  We focused most of our attention
on how the examiners supported this part of the net worth calculation
because the specific reserves had the greatest impact on Rushville's
insolvency determination.  The results of our review of Rushville's
loan portfolio are discussed in the following section. 


--------------------
\7 The capital-to-asset ratio measures the level of protection
available to cover future losses.  As a general rule, a higher
capital-to-asset ratio provides more protection against future
losses.  A well-capitalized bank has a total risk-based capital ratio
of 10 percent or more. 


      GAO'S REVIEW OF RUSHVILLE'S
      LOAN PORTFOLIO
---------------------------------------------------------- Letter :3.2

Workpapers from OCC's final Rushville examination documenting the
loan portfolio analysis indicated that examiners focused on a large
number of problem loans, which are loans posing a greater than normal
risk of default.  OCC examiners reviewed 134 loans, or 77 percent of
Rushville's loan portfolio, which included 175 loans with a combined
value of about $17.8 million.  Of this 175-loan portfolio, examiners
classified loans totaling $5.9 million as problem loans.  OCC further
documented decisions reached on 71 of these problem loans (64
reclassified loans from the previous examination and 7 newly
classified loans) through a process called a migration analysis,
which OCC uses in such cases to compare classifications and explain
the basis for changes. 

Our review of these comparisons was the first step we took in
reviewing the Rushville directors' allegation that OCC
inappropriately downgraded sound loans, thereby causing Rushville's
insolvency.  We reviewed all 71 loans from OCC's migration analysis
and then focused on 20 of these loans that had outstanding balances
of over $100,000.  The loan comparison was a key starting point
because it listed loans with a classification that had changed from
the previous year.  Rushville directors were concerned that many
loans were improperly classified in 1992. 

In addition, we identified for further study five other loans from
OCC's loan comparison that had relatively large outstanding balances
and OCC calculated specific reserves.  These loans were not
sufficiently documented by OCC for us to initially determine why the
loans were written down.  OCC examiners told us that many of the
bank's loans were poorly documented, and that they had to exercise
considerable judgment in classifying Rushville loans because of poor
loan records and the departure of Rushville directors and loan
officers who were most knowledgeable about the loans. 

The anticipated losses from the 25 problem loans we reviewed
represented over 88 percent of the $694,858 OCC charge-offs and over
77 percent of the $736,800 OCC calculated specific reserves.  For 12
of the loans in our sample, where it was possible to identify the
underlying rationale for the classification, OCC's classifications
seemed justified.  For the remaining 13 loans in our sample, it was
not completely clear how examiners arrived at their classifications. 
Such insufficient documentation was an agency problem we previously
identified during an earlier 1993 review of the quality of OCC's
examinations.\8 We also noted that the limited documentation OCC had
on some of the Rushville loans exceeding $100,000 did not meet agency
requirements that were in effect at the time of Rushville's closure
in 1992.  OCC's procedural guidance at that time required sufficient
documentation of significant write-downs for loans over $100,000 so
that a reviewer could understand the rationale for the write-down.\9

To better understand the basis for OCC's classifications of the
remaining 13 sampled loans, we reviewed available Rushville loan
files maintained by FDIC in Chicago and Dallas.  We also asked OCC
examiners and Washington, D.C., staff to summarize the factors
influencing their classification of these loans.  The FDIC files
contained actual bank documents on some of the 13 loans, including
loan files, security agreements, minutes from board meetings, and
various legal documents, but we were unable to find key documents
that would have allowed us to fully ascertain the basis for the
examiners' loan classifications for the 13 loans.  In these cases, we
used OCC summaries prepared at our request that generally supported
OCC officials' statements asserting that examiners used accepted
agency norms for valuing loans.  On the basis of the additional
information provided by OCC on these loans and the lack of
conflicting information in Rushville loan files maintained by FDIC,
OCC's classifications appeared appropriate. 

Finally, to ascertain the disposition value of the 13 problem loans,
we asked FDIC to tell us the amount it received on the loans or their
collateral at the time of their disposition.  FDIC records showed
that the 13 loans were sold with other FDIC assets, written off by
FDIC, or sold for lower amounts than those that were shown on
Rushville's records following negotiations with the borrower.  On
average, FDIC received 35 percent of the loan's book value, not
considering the reserves for loan losses.  Specifically, 10 of the
loans were disposed of at an amount lower than the value projected by
OCC, and the other 3 loans were sold for an amount higher than the
amount OCC initially projected.  (See app.  III.)


--------------------
\8 Bank Examination Quality:  OCC Examinations Do Not Fully Assess
Bank Safety and Soundness (GAO/AFMD-93-14, Feb.  16, 1993). 

\9 In 1993, OCC removed this requirement because OCC officials
thought the additional documentation was not needed for their
purposes. 


   FDICIA INTENT WAS TO SPEED THE
   CLOSURE OF PROBLEM INSTITUTIONS
------------------------------------------------------------ Letter :4

OCC closed Rushville 1 day before new regulatory procedures for
closing problem institutions became effective on December 19, 1992,
following the enactment of FDICIA.  Rushville directors have
expressed the belief that these new FDICIA procedures would have
allowed the bank to remain open for at least an additional 90 days,
and they have alleged that OCC closed the bank before the procedures
came into effect to prevent Rushville's directors from restoring
Rushville to solvency. 

Accordingly, you asked us to review whether OCC closed Rushville
before FDICIA's implementation to prevent the bank from remaining
open for at least another 90 days, and whether other banks were
closed before the implementation of FDICIA to avoid having to keep
them open under FDICIA.  Our analysis of FDICIA and its effect on
Rushville's closure indicated that FDICIA's implementation would not
have provided an additional time period in which OCC would have let
Rushville stay open.  We found that OCC did not appear to have taken
actions to quickly close other banks to avoid the effects of FDICIA's
implementation. 

To obtain evidence and views on whether FDICIA affected Rushville's
closure, we reviewed the requirements of FDICIA and met with
Rushville directors and with OCC officials.  Contrary to the
Rushville directors' belief that FDICIA allows for more lenient
treatment of problem institutions, FDICIA's capital provisions direct
federal banking regulators to take prompt corrective action to
resolve the capital weakness of institutions that fall below minimum
capital standards.\10

Specifically, the FDICIA provisions require OCC to promptly close
critically undercapitalized banks, such as Rushville.\11 The
provisions, which supplement rather than limit or replace OCC's
existing enforcement authority and earlier capital adequacy
guidelines, give OCC up to 90 days\12 to recapitalize, sell, or close
such banks.  However, OCC can take action to close such banks at any
time during the 90-day period.  According to OCC officials, they
would have not delayed closing Rushville because of its insolvency
and its inability to raise capital. 

Our review of other banks closed in the 6 months before and after the
closure of Rushville did not find evidence that the other banks were
treated more favorably.  In the 6 months before Rushville's closure,
OCC closed 22 national banks--although 13 of the 22 banks were
subsidiaries of a single holding company.  We found that OCC closed
these banks for reasons similar to those that were the basis for
Rushville's closure (i.e., insider abuse, inadequate reserves, and
weak loan administration).  Our review of these banks' closing books
indicated that OCC did not hasten their closure so as to close them
before FDICIA came into effect.  Similarly, we did not find evidence
that other banks closed during the 6 months after Rushville's closure
were treated more favorably than Rushville.  In the 6 months after
Rushville's closure, OCC closed 15 national banks.  We did not find
that these banks were allowed to remain open after FDICIA came into
effect without an active plan for their recapitalization. 


--------------------
\10 Bank and Thrift Regulation:  Implementation of FDICIA's Prompt
Regulatory Action Provisions (GAO/GGD-97-18, Nov.  21, 1996). 

\11 A critically undercapitalized bank is a bank whose capital levels
have decreased to less than 2 percent of the bank's ratio of tangible
equity to total assets.  Before FDICIA, banks could have capital
ratios between zero and 2 percent and remain open.  However, with
FDICIA, OCC would have been required to close the bank or take other
corrective action when the bank's capital level fell below $740,000,
instead of waiting for Rushville's capital to fall below zero. 

\12 Under 12 U.S.C.  1831o(h)(3), OCC may extend the initial 90-day
closing period to 270 days.  If a bank receiver is not appointed
within 90 days, OCC must determine, with the concurrence of FDIC,
that the decision to keep the bank open better serves the purposes of
the statute and document the reasons for its conclusions.  This
decision must be reviewed every 90 days and a receiver or conservator
must be appointed, unless a new determination is made.  In any case,
a receiver must be appointed if the institution is critically
undercapitalized during the quarter beginning 270 days after the date
it became critically undercapitalized, unless OCC determines that the
bank meets certain conditions, including positive net worth. 


   NO EVIDENCE FOUND THAT OCC
   INFLUENCED THE DECISION TO
   RECALL HOLDING COMPANY LOAN
------------------------------------------------------------ Letter :5

Rushville directors alleged that, in early 1992, OCC conspired to
close Rushville by contacting Liberty National Bank of Louisville
(Liberty) to suggest that it call in a $800,000 loan\13 to
Rushville's holding company, Hoosier Bancorp, which was
collateralized by Rushville stock.  In response to your request that
we examine whether OCC was involved with the recall of the Hoosier
Bancorp loan and determine whether OCC followed its policies and
procedures in this matter, we reviewed OCC and Liberty documents but
found no evidence that OCC's contacts with Liberty were contrary to
OCC policies and procedures. 

Our interviews with OCC officials and others found no support for the
Rushville directors' claim that OCC asked Liberty to recall the
Hoosier loan.  OCC officials and Liberty officers stated that OCC had
not attempted to influence the recall of the Hoosier Bancorp loan. 
Moreover, our review of internal OCC documents and trial depositions
did not reveal any evidence that OCC officials had asked Liberty
officers to recall the loan.  Officers of the creditor bank told us
that an internal loan review committee identified the Hoosier loan as
a problem in 1990 because the Rushville bank stock that
collateralized the loan was of questionable value and they doubted
the Rushville chairman's capacity to repay the loan. 

Our review found that communication between Liberty and OCC during
the period immediately preceding the 1992 loan recall involved
Liberty officials' initiating contacts with OCC officials to inform
them of the bank's intent to recall the loan and to later inform them
about Rushville and its directors' lawsuits against Liberty.  OCC
officials told us that although they might direct a bank to improve
its loan portfolio, they would not direct a national bank to initiate
a loan recall because such an action would necessitate OCC's sharing
information among banks.  According to the officials, OCC would share
information among banks only in situations where there is a
compelling supervisory reason, such as when it learns of criminal
activity that affects other banks.  OCC examiners in Louisville said
that they were never told by OCC officials in the Chicago district
office or Washington, D.C., headquarters to ask Liberty to recall the
Hoosier Bancorp loan.  Examiners explained that the recall was
strictly a business decision by bank officials in which they were not
involved. 

Liberty officers told us that they sought repayment of Liberty's loan
to Hoosier Bancorp in 1992 because the Rushville bank stock that
collateralized the loan was of questionable value.  Liberty officers
conducted several examinations of Rushville and were concerned about
its poor financial condition.  The officials said they were also
prompted to seek repayment by their doubts about the Rushville
chairman's capacity to repay the loan.  Records also show that
Liberty sought termination of the Hoosier loan on two previous
occasions. 

Liberty officers said their final recall decision was partly based on
their concern that Rushville could be closed and their collateral
rendered worthless under the prompt corrective action provisions of
FDICIA.  Liberty officers told us that they were also prompted to
recall the loan by the November 12, 1992, suspension of the chairman
from participating in managing Rushville.  In retrospect, they said
that their concerns about the chairman's repayment ability were borne
out by his failure to pay any of the outstanding loan amount since
November 1992.  A 1997 federal court judgment affirmed that Hoosier
Bancorp and the chairman were liable for the full amount of the
loan.\14

Finally, we found no evidence that OCC examinations of Liberty in the
3 years before the recall influenced Liberty's decision to seek the
recall by singling out the Hoosier Bancorp loan as a problem loan
warranting special attention.  Reports on OCC examinations of Liberty
did not list the Rushville loan as a problem loan until 1992.  That
year's OCC report on the Liberty examination mentioned the loan as
one of Liberty's large problem loans.  In the examination report, OCC
agreed with Liberty's internal classification of the Hoosier Bancorp
loan and with Liberty's allowance for losses on the loan. 


--------------------
\13 The Hoosier Bancorp loan originated in 1977 with a loan from
Louisville Trust Bank at a principal value of $900,000.  The terms
and conditions of the loan were renegotiated in 1980 and the
principal value was $1.7 million.  Louisville Trust Bank merged with
United Kentucky Bank in the early 1980s.  By 1985, United Kentucky
had merged with Liberty and the principal value of the loan was $1.6
million.  Liberty renegotiated and extended the loan several times in
the early 1990s, reducing the principal value.  In July 1992, the
Rushville chairman paid $530,000 against the principal, bringing the
outstanding loan amount to about $800,000.  Another $100,000
principal payment was made in November 1992; at maturity in December
1992, the loan had an outstanding balance of $700,000. 

\14 Rushville directors filed suit against Liberty's corporate
successor--Bank One, Kentucky.  They alleged that there was a
conspiracy between the Comptroller of the Currency and Bank One to
declare Rushville in default on the loan, and that Bank One's
possession of the Rushville stock should be considered satisfaction
of the loan agreement.  The Seventh Circuit Court of Appeals found
that the stock did not satisfy the debt and that there was no
evidence that Bank One's actions were improper.  Bank One
counterclaimed, seeking to recover the principal and interest on the
loan.  The district court entered judgment for Bank One.  Snyder v. 
Bank One, Kentucky, N.A., 113 F.3d 774 (7th Cir.  1997). 


   CIVIL MONEY PENALTIES FOLLOWED
   OCC PROCEDURES
------------------------------------------------------------ Letter :6

Rushville directors alleged that the penalties OCC assessed against
them since the 1980s were arbitrary and excessive, and that OCC
arbitrarily assessed several directors penalties because they were
publicly critical of OCC.  Accordingly, you asked us whether OCC had
a process for determining penalties, whether the process was followed
in the Rushville case, and whether the Rushville penalties were
excessive.  We found that OCC examiners and managers appear to have
followed agency guidance in assessing penalties.  However, we were
unable to determine how OCC set many penalty amounts because
documentation was incomplete, missing, or unavailable due to the
length of time that has elapsed since many of the penalties were
assessed.  We did not find that OCC arbitrarily assessed directors
penalties because they were publicly critical of OCC, as alleged by
Rushville directors.  In addition, we found that the penalties OCC
assessed the Rushville directors, including the $250,000 penalty OCC
assessed the Rushville chairman, while higher than average, were not
the highest OCC has assessed directors and officers of other banks
since 1989. 

OCC's process for determining civil money penalties is a multistep
process involving examiners and officials in the applicable OCC
district office and Washington, D.C.\15 After identifying violations
and in concert with OCC district officials, examiners consider
whether actions by responsible bank officers or directors warrant
their recommending a money penalty and, if so, what level the penalty
should be.\16 These recommendations are sent to OCC staff in
Washington, D.C., for review and analysis.  The staff presents the
case to OCC's Supervision Review Committee, which is made up of
senior OCC officials.  The committee makes a recommendation to a
Senior Deputy Comptroller who determines the final recommended
penalty amounts.  In the course of determining whether to assess a
civil money penalty and the amount of the penalty, OCC issues a
15-day letter to affected individuals soliciting their views.  At
this point, the director or officer is provided an opportunity to
negotiate the penalty.  If the penalty assessment is contested, the
case is brought before an independent administrative law judge.  The
judge's decision is sent to the Comptroller of the Currency for the
final determination of the penalty.  The OCC's determination may be
appealed to the U.S.  court of appeals. 

Evidence we reviewed indicated OCC followed its policies and
procedures for the penalties it assessed against Rushville directors
in the 1990s.  We were not able to come to a similar conclusion on
the penalties assessed in the 1980s because complete documentation
was not available.  Table 2 shows the amounts of penalties and their
resolution for the penalties OCC assessed Rushville directors since
1984, which was the first year penalties were assessed against the
Rushville directors.\17



                                Table 2
                
                   Civil Money Penalties OCC Assessed
                Against Rushville Directors or Officers

                                                  Individual penalty
                                                     assessments
                                                ----------------------
                                     Number of
                                   individuals
                                      assessed
Calendar year of        Positio          money  Propose  Actua  Amount
assessment              n            penalties      d\a    l\b    paid
------------------  --  -------  -------------  -------  -----  ------
1984                    Directo              1  $10,000  $5,00  $5,000
                         r                                   0
                        Directo              1   10,000  10,00       0
                         r                                   0
1985                    Chairma              1   15,000  15,00  15,000
                         n                                   0
                        Directo              2   10,000  10,00  10,000
                         r                                   0
                        Directo              1   10,000  10,00  10,000
                         r                                   0
                        Directo              1   10,000  10,00       0
                         r                                   0
                        Directo              1   10,000  2,000   2,000
                         r
1992                    Chairma              1   20,000  10,00  10,000
                         n                                   0
                        Directo              1   15,000  2,000   2,000
                         r
                        Directo              3   10,000  3,000   3,000
                         r
                        Directo              2    1,000  1,000   1,000
                         r
1993                    Chairma              1  250,000  250,0       0
                         n                                  00
                        Vice                 1   25,000  25,00       0
                         Chairm                              0
                         an
                        Officer              1   25,000  4,000   4,000
----------------------------------------------------------------------
\a The proposed civil money penalty assessment is the amount
determined by the Supervision Review Committee. 

\b The actual civil money penalty assessment is the amount determined
by OCC after negotiations with the assessed individual. 

Source:  OCC. 

OCC was able to provide us with limited documentation in support of
the penalty amounts it assessed in the 1980s.  OCC officials told us
that, with the passage of 14 years, it was difficult for them to
locate additional records pertaining to some of the penalties
assessed in 1984 and 1985.  OCC's inability to locate such records
limited our ability to determine how the amounts were chosen. 
Moreover, we noted that OCC's penalty assessment procedures at that
time did not include guidance on the possible ranges of penalty
amounts that could be assessed. 

We found that OCC initially set the amounts of the penalties it
assessed in 1992 and 1993 on the basis of a penalty assessment matrix
it began using in January 1991.  The penalty matrix provides guidance
for examiners to use in determining whether to assess civil money
penalties and the amount of such penalties.  The matrix, which is
intended to make the process of civil money penalty assessment
consistent and equitable, weights such factors as severity, intent,
pecuniary gain, loss to the bank, and concealment. 

Although district examiners initially based the penalties they
assessed in 1992 on penalty matrices, we found that many penalty
amounts were increased as the penalty assessments went through OCC's
review process.  We found that OCC procedures allow for such
increases when examiners-in-charge and OCC officials believe
circumstances warrant them.  Specifically, written OCC policies and
procedures emphasize that the matrix is only a guide to use in
determining an appropriate penalty.  OCC policies and procedures
state that the matrix was not intended to reduce the penalty
assessment process to a mathematical equation, and that it should not
be a substitute for sound supervisory judgment. 

In setting the 1992 Rushville penalties, OCC appears to have followed
its procedures that allow for such increases, but for two of the four
assessments we found little documentation to support the increases in
amounts or the use of factors not covered in the penalty matrix as
the basis for setting penalties.  Specifically, documented
explanations for the 1992 penalty amounts were missing or incomplete
in the following two instances. 

  -- The $20,000 assessment against the chairman and the $15,000
     assessment against a director reflected $10,000 and $5,000
     increases, respectively, beyond the level the matrix
     recommended.  The district staff's recommendation for a higher
     amount was based on similar noncompliance by the chairman and
     director almost a decade earlier and by their continuing
     disregard for a cease-and-desist order.  The district's
     recommendation did not explain how the increases were chosen. 
     Washington, D.C., staff disagreed with the district
     recommendation, arguing that the penalty matrix takes into
     account all of the circumstances that should be considered in
     assessing a penalty.  The district's recommendation was accepted
     by the Supervision Review Committee because of the chairman's
     and the director's significant and long-standing noncompliance. 

  -- Penalties assessed against three directors were assessed at
     levels exceeding the initial recommended amounts that district
     examiners calculated using the matrix.  In these instances, the
     matrix prepared by the district staff recommended a letter of
     reprimand, but OCC's district office assessed the directors
     $10,000 each.  The rationale given for the increase was that
     setting a penalty of less than $10,000 would imply that OCC
     viewed the directors' current noncompliance as less serious than
     their previous noncompliance, which resulted in a $10,000
     assessment, according to OCC documents. 

OCC officials said they also based the penalties they assessed in
1993 on penalty matrices.  However, OCC was not able to furnish us
with the applicable matrices because they could not be located. 
Other documents in OCC files provided insight into the rationale for
the 1993 assessments, but these documents provided less insight into
how penalty amounts for two of the three assessments were calculated. 
Specifically, documented explanations for the 1993 penalty
assessments were missing or incomplete in the following two
instances. 

  -- The $25,000 penalty assessed against a director was first
     proposed to be $10,000.  However, the Supervision Review
     Committee increased the penalty to $25,000 because the director
     was the nominal recipient of a $300,000 loan, which caused a
     loss of about $300,000.  Although we found no documentation
     explaining how OCC arrived at the $25,000 penalty amount, an
     independent administrative law judge found that the assessment
     could have been as much as $5 million.\18 The Comptroller of the
     Currency subsequently adopted the $25,000 amount. 

  -- The $250,000 penalty assessed against the chairman was based on
     the district's recommendation of a penalty amount of $125,000 or
     more.  Although the Supervision Review Committee cited the
     chairman's demonstrated "reckless disregard" for the law, for
     the soundness of the bank, and for his own fiduciary duties as
     the reason for assessing $250,000, we found no documentation
     explaining how OCC calculated the increased amount.  OCC
     officials told us that there are numerous violations described
     in a variety of OCC documents justifying the $250,000 penalty. 
     An independent administrative law judge found that the
     assessment could have been as much as $1.7 million,\19 but
     subsequently the Comptroller of the Currency adopted the
     $250,000 amount. 

Evidence we reviewed indicated that OCC appears to have followed its
policies and procedures in assessing penalties against Rushville
directors who were publicly critical of OCC.  Specifically, we did
not find that OCC arbitrarily assessed two directors penalties
because of their public comments, as alleged by Rushville directors. 
We found the directors were actually assessed penalties for various
violations, including their noncompliance with a cease-and-desist
order.  Our review indicates that certain public statements by
Rushville directors in newspapers in July 1993 were made after
penalties were assessed and thus could not have influenced OCC
penalty determinations in January 1993.  OCC officials told us that
it is common for bank officials to make statements critical of OCC
after having civil money penalties assessed against them or having
their banks closed.  OCC officials said that the penalty-setting
process does not consider these comments, and that such comments by
Rushville officials were not part of the penalty determination. 

We found that the $250,000 penalty OCC assessed against the Rushville
chairman was not the highest penalty OCC had assessed since 1989.\20
Over the past 9 years, OCC assessed 21 individuals $250,000 or more. 
Twelve of these individuals were assessed over $250,000, of which 5
were assessed $1 million, and the highest amount assessed against 1
individual was $1.9 million.  Our comparison of OCC's penalty
assessment for the chairman to its assessments in four similar cases
involving penalties of more than $250,000 indicated that OCC did not
appear to have applied a more stringent standard to the Rushville
assessment. 


--------------------
\15 The Financial Institution Regulatory and Interest Rate Control
Act of 1978, P.L.  95-630, 92 Stat.  3641 (1978), gave OCC authority
to levy money penalties for violations of various federal statutes
and regulations, including a money penalty of up to $1,000 per day
for violation of a cease-and-desist order.  Under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, P.L. 
101-73, 103 Stat.  183 (1989), OCC's authority was expanded and money
penalties were grouped into three categories.  The maximum penalty
that could be assessed under each of the three tiers was $5,000 per
day; $25,000 per day; and $1,000,000 per day.  The harsher penalties
are associated with more serious offenses.  The law requires that OCC
take the following factors into account:  (1) the financial resources
of the person, (2) good faith, (3) the gravity of the violation, (4)
a history of previous violations, and (5) such other factors as
justice may require. 

\16 OCC procedures require penalty amounts below $10,000 to be
reviewed by the applicable OCC district office.  Similarly, penalties
above $10,000 are to be referred to the Washington, D.C., office and
ultimately are reviewed by the Supervision Review Committee. 
District office penalty review authority was increased to $20,000 in
June 1992. 

\17 In addition to the penalties mentioned in table 2, OCC is seeking
to recover an additional $451,686 from the chairman and a director as
restitution for losses resulting from insider transactions and
improper activities involving legal fees to defend the directors that
were improperly paid by the bank. 

\18 The administrative law judge's amount was based on the violation
being assessable under the federal statute at $5,000 per day for a
period of about 3 years--the period during which the lending limit
restriction was violated.  The administrative law judge agreed with
OCC's original assessment of $25,000. 

\19 The administrative law judge's amount was based on the violation
being assessable under federal statutes at $1,000 per day
(pre-Financial Institutions Reform, Recovery, and Enforcement Act
(FIRREA)) for about 240 days and $5,000 per day (under the law as
changed by FIRREA) for a period of about 300 days--the periods of
time during which the bank made illegal payments of legal fees.  The
administrative law judge agreed with OCC's original assessment of
$250,000. 

\20 Information on penalties first became public in 1989.  Penalty
information before 1989 was not readily available, according to an
OCC official. 


   NO EVIDENCE TO SUPPORT CLAIMS
   OF STOCK SALE PROHIBITION
------------------------------------------------------------ Letter :7

Former Rushville directors alleged that OCC prevented the chairman
from selling his bank stock.  You asked us whether OCC followed its
policies and procedures in its involvement with the proposed sale of
Rushville stock.  In addition, you asked (1) whether OCC procedures
and practices prevented a director or officer of a bank from selling
stock in the bank and (2) how many times in the last 5 years OCC had
prevented a director or officer from selling stock.  Our review of
OCC procedures and practices indicated that OCC does not prevent bank
directors or officers from selling stock.  Furthermore, our review of
documentation and discussions with OCC officials provided no evidence
that OCC had prevented a director or officer from selling stock
during the last 5 years or that it would prevent such a stock sale in
the future. 

Regarding this allegation, a number of the Rushville directors
claimed that an OCC attorney expressly stated at the November 12,
1992, meeting at which the chairman was suspended from banking that
he could not sell his Rushville stock.  To better understand this
allegation, we interviewed Rushville directors and OCC officials
present at the meeting and reviewed their affidavits on the matter. 

We did not find any documentation substantiating the allegation that
OCC officials prohibited the sale of stock.  The OCC officials we
interviewed denied the Rushville directors' claim.  These officials
told us that it is OCC's policy to approve the sale of stock by a
suspended bank director or officer, and they said, generally, that
their only concern is that a suspended director or officer not
continue to be involved with the bank's affairs.  Specifically, the
officials told us that at the suspension meeting, they told the
chairman that he was being suspended, and then an OCC attorney read
aloud the applicable banking law\21 under which he was being
suspended. 

OCC officials told us that a misunderstanding could have occurred
because of the complicated language of the law and the adversarial
nature of the suspension meeting.  The law read to the chairman says
that a person subject to a suspension order cannot transfer or
attempt to transfer voting rights in any institution, but the law
does not address the subject of stock sales.  The suspension order
presented to the Rushville chairman did not address the issue of
whether he could sell his Rushville stock.  OCC officials told us
that they provided the chairman with no written guidance or
instructions, and they said that OCC has no written procedures on
steps to take in a suspension because suspensions occur so
infrequently. 

In response to a lawsuit filed to allow the chairman to sell his
stock, OCC officials sent a letter to the chairman's attorney on
December 4, 1992, telling him that the chairman could sell his stock. 
However, the officials stated in the letter that OCC would have to
approve such a sale to ensure that the person purchasing the stock
had no connection to the chairman.  On December 23, 1992, the
Department of Justice also notified the chairman's attorney that the
chairman could sell his stock. 


--------------------
\21 12 U.S.C.  1818(e). 


   RUSHVILLE LIQUIDATION COST
   ALMOST $9 MILLION
------------------------------------------------------------ Letter :8

Following its closing, Rushville's assets were acquired by FDIC in
its role as the liquidator for the Bank Insurance Fund.  Liquidation,
which is the next step after an insolvent bank's closure, is the
process by which FDIC disposes of a bank's assets and attempts to
recover the costs it incurs in closing a bank.  The final liquidation
loss for Rushville amounted to about $8.8 million. 

This $8.8 million in liquidation costs can be broadly categorized as
$2.4 million in liquidation expenses, which represent FDIC's
operational costs, and $6.4 million in losses\22 from the disposition
of Rushville assets, according to FDIC documents.  Operational costs
represent the cost of FDIC personnel directly assigned to the
Rushville liquidation; other FDIC personnel supporting the
liquidation; and professional fees for auditors, tax accountants, and
appraisers.  Losses from the disposition of assets mostly represented
losses from the sale of Rushville's commercial and real estate loans. 
Liquidation costs were partly offset by revenues from interest on
performing loans and earnings from Rushville's securities. 


--------------------
\22 Loss is the difference between the book value of a loan when FDIC
acquires it and FDIC's receipts from selling the loan.  The two
largest loss categories for Rushville were commercial loan losses,
which totaled $2.9 million, and real estate mortgage losses, which
amounted to $2.1 million. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :9

We requested comments on a draft of this report from OCC, FDIC, and
the Federal Reserve.  OCC generally agreed with the draft report's
contents (see app.  IV).  FDIC and the Federal Reserve neither
expressed any concerns nor offered any comments. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Ranking Minority Member
of your committee, the Indiana congressional delegation, other
interested congressional committees, the Comptroller of the Currency,
the Chairman of the Federal Deposit Insurance Corporation, the
Chairman of the Board of Governors at the Federal Reserve System, and
other interested parties.  We will also make copies available to
others upon request. 

Major contributors to this report are listed in appendix V.  Please
contact me at (202) 512-8678 if you or your staff have any questions. 

Sincerely yours,

Richard J.  Hillman
Associate Director, Financial
 Institutions and Markets Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To determine whether OCC followed its policies and procedures in
calculating Rushville's net worth and classifying the bank's loans,
we met with OCC officials and staff in Washington, D.C.; Chicago, IL;
Indianapolis, IN; and Louisville, KY.  In addition, we reviewed
documentation available at each of these locations, including
examination workpapers.  We also asked the Rushville directors to
indicate which loans they believed were misclassified.  Since the
directors did not provide us with a list of misclassified loans, we
focused our attention on 71 problem loans (64 reclassified loans from
the previous examination and 7 newly classified loans) that were in
OCC's migration analysis.  We then focused on 20 loans that had
outstanding balances exceeding $100,000.  In addition, we identified
five smaller loans that had relatively large outstanding balances and
OCC calculated specific reserves from OCC's migration analysis for
further study. 

In addition, we reviewed Rushville loan files maintained by FDIC.  We
also discussed the final examination and closure with FDIC staff in
Washington, D.C.; Chicago; Indianapolis; and Dallas; and the Federal
Reserve staff in Washington, D.C., and Chicago.  Staff in our
Accounting and Information Management Division also reviewed OCC's
net worth calculation to determine whether OCC followed generally
accepted accounting principles. 

To determine the impact of FDICIA on the closure of Rushville, we met
with Rushville directors and their attorneys to discuss their views
on Rushville.  In addition, we discussed their allegations with OCC
officials and staff in Washington, D.C.; Chicago; Indianapolis; and
Louisville and reviewed OCC documentation.  We also reviewed OCC's
closing books on 18 banks closed before and after the implementation
of FDICIA.  Additionally, we discussed FDICIA implications with the
Federal Reserve staff in Washington, D.C., and Chicago.  Our Office
of the General Counsel also reviewed legal issues concerning FDICIA
and the Rushville closure. 

To determine whether OCC contacts with Liberty regarding the recall
of the Hoosier Bancorp loan followed OCC policies and procedures, we
met with directors from Rushville and several Liberty officers and
reviewed documentation they provided.  In addition, we discussed the
recall allegation with OCC officials and staff in Washington, D.C.;
Chicago; Indianapolis; and Louisville.  We also reviewed OCC
documentation on contacts with Liberty. 

To determine whether OCC followed its policies and procedures in
assessing civil money penalties, we met with directors from Rushville
and reviewed documentation they provided.  In addition, we discussed
the Rushville civil money penalty allegation with OCC officials and
staff in Washington, D.C.; Chicago; and Indianapolis.  We also
reviewed available documentation at each location and discussed this
allegation with the Federal Reserve staff in Washington, D.C.  Our
Office of the General Counsel also reviewed the legal questions
concerning the assessment of civil money penalties. 

To ascertain the nature of OCC's involvement with the proposed sale
of Rushville stock by the chairman and whether OCC followed its
policies and procedures, we met with Rushville directors and reviewed
documentation they provided.  In addition, we discussed the proposed
Rushville stock sale allegation with OCC officials and staff in
Washington, D.C., and Indianapolis and also reviewed available
documentation at each location.  Additionally, our Office of the
General Counsel reviewed the legal issues concerning the chairman's
suspension as it related to the proposed sale of stock, and we
discussed this allegation with a Justice attorney who had
responsibility for representing OCC in this matter. 

Finally, we reviewed various documents provided to us by several
sources.  The directors of Rushville gave us documents that they
considered relevant, including a chronology of events and related
depositions.  We reviewed approximately 100 boxes containing OCC
documents subpoenaed by your office and Rushville loan files
maintained by FDIC.  We also reviewed OCC's supervisory monitoring
system files on Rushville and Liberty, which provided a comprehensive
picture of the background, condition, and status of the banks and
OCC's supervisory plans.  In addition, we reviewed legal documents
from federal courts involving recent court proceedings regarding
Rushville directors. 

We conducted our review from August 1997 through April 1998 in
accordance with generally accepted government auditing standards. 


SELECTED EVENTS CONCERNING THE
RUSHVILLE NATIONAL BANK CLOSURE
========================================================== Appendix II

Date          Event
------------  --------------------------------------------------------
December      OCC examination disclosed unacceptable lending practices
31,           and deterioration in Rushville's overall condition.
1982

June 29,      Rushville directors consented to an OCC cease-and-
1983          desist order addressing criticized loans, loan policy,
              credit and collateral exceptions, loan review, allowance
              for loan and lease losses, budgets, expenses, and
              conflicts of interest.

June 27,      Rushville directors consented to an OCC cease-and-
1991          desist order requiring the appointment of a president
              and a certified accountant.

May 26, 1992  A national newspaper listed Rushville as one of the
              nation's most troubled banks.

June 1, 1992  A Liberty officer contacted OCC to inform it that
              Liberty intended to demand payment in full on the
              Hoosier Bancorp loan.

October 31,   OCC began its final examination of Rushville.
1992

November      OCC suspended the bank chairman for engaging in unsafe
12,           and unsound practices and insider abuse.
1992

November      State of Indiana withdrew its funds, thereby straining
16,           liquidity.
1992

November      Liberty declared holding company loan in default and
19,           demanded principal and interest.
1992

December      OCC asked for FDIC-assisted purchase of Rushville or
10,           payout of insured deposits.
1992

December      Four Rushville directors resigned.
11,
1992

December      OCC examination showed the bank was capital insolvent
18,           and its liquidity seriously impaired. The Comptroller of
1992          the Currency declared Rushville insolvent, and FDIC was
              appointed its receiver.

December      OCC closed Rushville.
18,
1992
----------------------------------------------------------------------
Source:  OCC. 


RESULTS OF GAO'S DETAILED LOAN
REVIEW
========================================================= Appendix III

                                            OCC
                                 OCC   adjusted         FDIC
                   Amount\  adjustme       book  disposition  Differen
Loan                     a      nt\b     value\        value      ce\c
-----------------  -------  --------  ---------  -----------  --------
1.                 $205,03  $205,030         $0     $121,500  $121,500
                         0
2.                  72,015    72,015          0       60,641    60,641
3.                  89,928    49,928     40,000       43,666     3,666
4.                 340,587    21,050    319,537      172,905  (146,632
                                                                     )
5.                 418,117   238,117    180,000       35,000  (145,000
                                                                     )
6.                 150,000    25,000    125,000            0  (125,000
                                                                     )
7.                 113,753    56,553     57,200       12,500  (44,700)
8.                 146,223    30,000    116,223       72,467  (43,756)
9.                 100,471    24,000     76,471       49,699  (26,772)
10.                 74,541    20,000     54,541       36,350  (18,191)
11.                127,788    70,188     57,600     45,580\d  (12,020)
12.                 70,000    53,177     16,823       10,306   (6,517)
13.                 58,347    29,000     29,347       26,989   (2,358)
======================================================================
Total              $1,966,  $894,058  $1,072,74     $687,603  ($385,13
                       800                    2                     9)
----------------------------------------------------------------------
\a This was the loan amount at the time of the Rushville closure
prior to OCC adjustment. 

\b OCC adjustments for specific allocation and/or loss write-off. 

\c FDIC disposition value less the OCC adjusted book value. 

\d This amount represents the difference between the FDIC disposition
value and FDIC's cost to acquire the property from the first lien
holder and its foreclosure costs. 

Sources:  OCC and FDIC. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE OFFICE OF THE
COMPTROLLER OF THE CURRENCY
========================================================= Appendix III


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Patrick S.  Dynes, Senior Evaluator
Nolani D.  Traylor, Senior Evaluator

SAN FRANCISCO FIELD OFFICE

Kane A.  Wong, Assistant Director
Gerhard C.  Brostrom, Communications Analyst

*** End of document. ***