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"problem bank" designation, Peoples was subjected to a very high
level of scrutiny in future examinations by the FDIC;
examinations were conducted more frequently; greater
correspondence between Peoples and the FDIC was required; and
Peoples could have been prohibited from any merger, acquisition,
divestiture, or expansion activity. Designation as a "problem
bank" also excluded Peoples from bidding on the assets of failed
financial institutions. Continued failure to comply with the CRA
could have resulted in a cease-and-desist order by the FDIC, with
the ultimate sanction of forced closure.
Peoples' CRA compliance costs were significant for a bank
its size. In addition to the additional demands on management
imposed by the CRA requirements, Peoples was forced to hire two
full-time attorneys to oversee its CRA compliance. In February
1993, shortly after hiring Mr. Krochta, Peoples hired Tony
Aylsworth, another local attorney as an assistant vice president
and assistant compliance officer. Mr. Aylsworth's first
assignment at Peoples was "scrubbing" the loan files.
"Scrubbing" as used in this context, refers to the process of
reviewing loan files to see if they contain adequate
documentation, and correcting any documentation problems
discovered, such as missing documents or signatures. Inadequate
loan documentation was a contributing factor in Peoples' CRA
compliance difficulties, because Peoples was unable to show why
and where it was denying certain loans. Until decedent's death
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