                                 No. 95-3346



THE GREENE COUNTY BANK,                   *
                                          *
     Petitioner,                          *
                                          *
v.                                        * On Petition for Review of
                                          * Decision and Order of the
FEDERAL DEPOSIT INSURANCE CORP., *     Federal Deposit Insurance
                                          * Corporation
     Respondent.                          *



                           Submitted: June 14, 1996

                              Filed: August 7, 1996



Before MORRIS SHEPPARD ARNOLD and MURPHY, Circuit Judges, and
JACKSON*, District Judge.

JACKSON, District Judge.

     The Greene County Bank appeals a cease and desist order issued by the
Board of Directors of the Federal Deposit Insurance Corporation ("FDIC").
The order requires the Bank to comply with a February 12, 1992 Memorandum
of Understanding ("MOU") regarding certain activities in the futures and
securities markets, and was prompted by the alleged failure of the Bank to
comply with the MOU.      The Bank attacks the order as not supported by
substantial evidence and as arbitrary and capricious.    The Bank also argues
that the FDIC applied an incorrect standard in determining that the Bank
engaged in unsafe and unsound practices.       We uphold the cease and desist
order.




     *
      The HONORABLE CAROL E. JACKSON, United States District Judge
for the Eastern District of Missouri, sitting by designation.
I. BACKGROUND
     The FDIC initiated an administrative action against the Bank pursuant
to 12 U.S.C. § 1818(b) on July 26, 1993 by issuing a Notice of Charges and
Hearing.     Following a three-day hearing, an Administrative Law Judge
("ALJ") recommended against the issuance of a cease and desist order.    Upon
review of the ALJ's decision, the FDIC Board found failures of compliance
that constituted violations of the MOU and the FDIC Policy Statement as
well as unsafe and unsound practices. As a result, the FDIC issued a cease
and desist order requiring the Bank to comply with the MOU and FDIC Policy
Statement.


II. DISCUSSION
     In considering the Bank's challenge to the sufficiency of the
evidence to support the cease and desist order, our review is limited to
a determination of whether the agency decision is supported by substantial
evidence on the record as a whole. Northwest National Bank v. United States
Dept. of the Treasury, 917 F.2d 1111 (8th Cir. 1990); First Nat'l Bank of
Eden v. Dept. of the Treasury, 568 F.2d 610, 611 (8th Cir. 1978).
Substantial evidence
"is such relevant evidence as a reasonable mind might accept as adequate
to support a conclusion." Culbertson v. Shalala, 30 F.3d 934, 939 (8th Cir.
1994). In reviewing the agency decision, we consider the entire record,
including the ALJ's recommendation. Simon v. Simmons Food, Inc., 49 F.3d
386, 389 (8th Cir. 1995).      If the agency departs from the findings of the
ALJ, it must show that it gave "attentive consideration" to the ALJ's
conclusions.     Id. at 390.


     At issue in this case is whether the process by which the Bank
engaged in futures and securities market activities complied with the
procedures set forth in the MOU. The MOU requires the Bank to (1) develop
written policies for addressing interest rate risk exposure and governing
the use of futures to reduce interest rate risk and (2) provide detailed
justification each time the Bank uses




                                        2
futures to reduce interest rate risk.1        The MOU also incorporates the FDIC
Policy Statement which, in part, requires the Bank's board of directors to
approve any plan to engage in futures market activities. In his recommended
decision, the ALJ concluded that the Bank had complied with the MOU in
material respects but had not adopted an investment policy in compliance
with Section 1(c).   The ALJ, however, did not recommend the issuance of a
cease and desist order. In its reversal of the ALJ decision, the FDIC found
that the Bank had in fact failed to adhere to the MOU requirements by
engaging in futures and securities market transactions without prior
approval by the Bank's board of directors and without proper analysis and
documentation. The FDIC concluded that in light of the risks involved in
these types of transactions, complete compliance with the MOU was required,
and the cease and desist order was necessary to ensure such compliance.


     The record shows that the Bank failed to comply with the terms of the
MOU and the FDIC Policy Statement when it did not properly document and
obtain approval of the acquisition of a number of spread positions.                 The
Bank began acquiring these positions in the Fall of 1992.             However, these
investments were not formally approved by the Board until March 29, 1993,
months after they were made.        The only document in the record which
contained   the   Bank's   explanation   of    its   strategy   for   this   type   of
investment was undated.      The FDIC concluded that to the extent that any
documents contained language that could be construed as authorizing the
acquisition of these spread positions, such language was too vague




     1
       Section 1(a) of the MOU requires the Bank, within 30 days of
the date of the MOU, to develop a written plan of action to reduce
the bank's interest rate risk exposure. Section 1(b) requires the
Bank to adopt a written policy governing the use of futures
contracts as a method for reducing interest rate risk which
incorporates the requirements of the FDIC Policy Statement. Section
1(b) also requires the Bank to perform specific analyses each time
it uses futures to reduce interest rate risk. Section 1(c) requires
the Bank, within 30 days of the date of the MOU, to devise an
interest rate risk exposure/rate sensitivity policy.

                                         3
to comply with the requirements of the FDIC Policy Statement. The testimony
of the FDIC examiner in charge supports this conclusion.


     The FDIC's decision was also based on substantial evidence of
deficiencies regarding the Bank's calculation and analysis of interest rate
risk exposure. The evidence revealed that the Bank did not calculate and
analyze its interest rate risk exposure on a regular basis as the MOU
required. Although the ALJ believed that this deficiency could be excused
because the Bank was receiving gap analyses measuring the exposure from the
FDIC and other examiners, clearly the terms of the MOU required regular
monitoring by the Bank.


     After reviewing the record as a whole, we find that the FDIC's
determination that the Bank failed to fully comply with the conditions of
the MOU is supported by substantial evidence.


     The Bank also attacks as arbitrary and capricious the FDIC's decision
to issue a cease and desist order.   Our review of the remedy imposed by the
FDIC to address unsafe and unsound banking practices is limited.        The
remedy may not be set aside unless it is "arbitrary, capricious, or
otherwise contrary to law." Currie State Bank v. FDIC, 878 F.2d 215, 218
(8th Cir. 1989). Pursuant to 12 U.S.C. § 1818(b)(1), the FDIC may issue a
cease and desist order to prevent a bank from engaging in unsafe or unsound
practices.   Proof of misconduct alone entitles the FDIC to invoke its broad
cease and desist enforcement powers. Oberstar v. FDIC, 987 F.2d 494, 502
(8th Cir. 1993).


     In this case, the FDIC concluded that the Bank's failure to comply
with the MOU constituted an unsafe and unsound banking practice, justifying
the issuance of a cease and desist order. As discussed above, the record
contains substantial evidence to support the agency's decision.        Upon
finding an unsafe and unsound banking practice, the FDIC may require a bank
to "take affirmative




                                     4
action to correct the conditions resulting from any such . . . practice."
12 U.S.C. § 1818(b)(1). The requirements imposed by the cease and desist
order constitute the type of affirmative action that is authorized by the
statute.2 See Eden, 568 F.2d at 611 n.1 (upholding cease and desist order
to   address    the     failure   to    implement   internal     controls    and   auditing
procedures).     Based on the foregoing, we conclude that the choice of remedy
by the FDIC in this case was not arbitrary and capricious.


      Finally, the Bank argues that the FDIC applied the wrong standard in
determining that the Bank's failure to comply with the MOU constituted an
unsafe and unsound practice.              The Bank argues that application of the
"unsafe and unsound practice" standard is limited to practices having a
reasonably direct effect on the Bank's financial soundness, a situation not
present in this case. See Matter of Seidman, 37 F.3d 911 (3rd Cir. 1994);
Hoffman v. FDIC, 912 F.2d 1172 (9th Cir. 1990); Gulf Federal Savings & Loan
v. FHLBB, 651 F.2d 259 (5th Cir. 1981), cert. denied, 458 U.S. 1121 (1982).
It is well-settled in this Circuit, however, that an "unsafe or unsound
practice"      exists    where    the   conduct   is   "deemed    contrary    to   accepted
standards of banking operations which might result in abnormal risk or loss
to a banking institution or shareholder."              Eden, 568 F.2d at 611 n.2. See
also Oberstar, 987 F.2d at 502.             We conclude that the FDIC in this case
applied the appropriate standard to determine whether the challenged action
constituted an "unsafe or unsound practice."


      The August 1, 1995 Decision and Order of the FDIC Board of Directors
is affirmed.




      2
       The cease and desist order requires the Bank, within 30 days
of the date of the order, to submit documentation showing the
Bank's full compliance with the MOU and FDIC Policy Statement. The
cease and desist order also requires the Bank to calculate interest
rate risk exposure on a quarterly basis.

                                              5
A true copy.


     Attest:


               CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




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