Nearly 1,200 depositories have been hit with an enforcement action made public by federal regulators since the start of 2008, and that number is expected to climb at an accelerated rate.
"By the end of this year, there will be in excess of 2,000 banks under an order," said Michael Ross, the president and chief executive of Dearborn Bancorp Inc. in Michigan, which has a written agreement with the Federal Reserve Bank of Chicago.
Enforcement actions are on pace to increase 64% this year, making lenders increasingly wary of further obstacles to their recovery.
"Everybody's very cautious, and the very scary part is, they're reluctant to lend" because of the heightened enforcement actions, "which impedes economic recovery," said Don Mann, a former Michigan state bank regulator and now an independent bank consultant.
The stigma of an enforcement order can make it harder to raise capital, but some bankers said the actions have become so common that investors are getting desensitized. Bank orders don't carry that "scarlet letter 'A' anymore. They're losing their sticker shock," Ross said. Now, "it's honk if you've got an order."
Federal regulators took enforcement actions against 462 banks in the first six months of 2010, according to data compiled by Foresight Analytics. Orders publicly announced by regulators have more than doubled since a year earlier and are 100 shy from reaching the total for all of 2009.
