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Prompt Corrective Action

Prompt corrective action (PCA) is a remedial measure taken after the FSC/FSS makes the determination that a financial services firm demonstrates heightened risk of stress or failure primarily on the basis of the evaluation of its capital adequacy and the result of supervisory rating. Prompt corrective action ranges from management improvement recommendation (MIR) and management improvement demand (MID) to management improvement order (MIO). When a PCA is triggered, the subject institution must submit a turnaround plan to the FSC/FSS for approval and carry it out by the end of the execution period. Actions stemming from PCA can vary significantly from a mere recommendation for certain corrective measures to an order for asset sales or a merger.

Rating Components and Evaluation Factors

Rating Components and Evaluation Factors
  Prompt Corrective Action
Capital adequacy MIR MID MIO
Banks and bank holding companies Regulatory capital < 8% < 6% < 2%
Tier 1 capital < 6% < 4.5% < 1.5%
CET 1 capital < 4.5% < 3.5% < 1.2%
Financial investment services providers Net capital ratio < 100% < 50% < 0%
Net operating capital ratio < 150% < 120% < 100%
Insurance companies Risk-based capital < 100% < 50% < 0%
Merchant banks Capital ratio < 8% < 6% < 2%
Mutual savings banks Capital ratio < 6% < 4% < 1.5%
Specialized credit finance companies Adjusted capital ratio < 7% < 4% < 1%
Credit card companies Adjusted capital ratio < 8% < 6% < 2%
Nonbank financial holding companies Capital relative to required capital < 100% < 75% < 25%
Supervisory rating MIR MID MIO
Financial holding companies Composite rating of 3 and component rating of 4 or 5 for either financial holding company or capital adequacy component; Composite rating of 4 or 5;

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Specialized credit finance companies Composite rating of 4 and component rating of 3 or better for either capital adequacy or asset quality component; Composite rating of 4 and component rating of 4 or worse for capital adequacy or asset quality; Composite rating of 5;
Credit card companies Composite rating of 3 or better and component rating of 4 or 5 for either capital adequacy or asset quality component; Composite rating of 4 or 5;

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Others Composite rating of 3 and component rating of 4 or 5 for either capital adequacy or asset quality component; Composite rating of 4 or 5;

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Prompt Corrective Action MIR MID MIO
 

Potential supervisory actions
  • Operational improvement in organization and personnel;
  • Capital increase or write-off;
  • Restrictions on expansion into new businesses;
  • Branch closings and restrictions on new branch openings;
  • Dismissal of company officers;
  • Partial suspension of business operations;
  • Retirement of company stocks;
  • Appointment of outside administrator;
  • Merger;
Execution of business improvement plan MID triggered if business improvement plan rejected or incompletely executed; MIO triggered if business improvement plan rejected or incompletely executed; Delicensing and business closure if business improvement plan rejected or incompletely executed;