Fed orders Small Business Bank to reach adequate capital within 30 days
Small Business Bank must reach adequate capitalization within 30 days or complete acquisition, under a binding Fed directive
Change
Effective 29 June 2026, the Board of Governors of the Federal Reserve System (the Fed) issued a Prompt Corrective Action Directive upon consent finding Small Business Bank, Lenexa, Kansas significantly undercapitalized as of 18 June 2026, directing it within 30 days to raise equity to adequately-capitalized status, be acquired, or otherwise restore capital, and imposing statutory restrictions on distributions, deposit rates, affiliate transactions, executive pay, and growth.
Why it matters
The Bank has 30 days from the effective date to become adequately capitalized under Regulation H section 208.43(b)(2), by raising equity, closing an acquisition by a holding company or combination with another insured depository institution, or other necessary measures. Capital distributions including dividends are restricted under section 38(d)(1). The Bank cannot solicit or accept new deposits or renew time deposits above prevailing regional rates without prior Reserve Bank approval, Board Division concurrence, and fulfillment of a capital requirement, and must submit within 30 days a plan to conform existing non-time deposit rates to regional rates. Affiliate transactions must comply with section 23A; senior-executive bonuses and pay increases are restricted; and asset growth, acquisitions, branching, and new lines of business are restricted. Written progress reports are due 30 days after the Directive and monthly thereafter.
Implications
- — Small Business Bank's capital and treasury function must, within 30 days of 29 June 2026, restore the Bank to adequately-capitalized status by raising equity, closing an acquisition or combination, or other measures — failure exposes the Bank to further enforcement under section 8 of the FDI Act.
- — Small Business Bank's deposit-pricing and finance teams must not solicit or accept new deposits or renew time deposits above prevailing regional rates absent prior Reserve Bank approval, Division concurrence, and a fulfilled capital requirement, and must submit a rate-conforming plan for existing non-time deposits within 30 days — non-conforming rates breach the Directive.
- — Small Business Bank's finance and HR functions must freeze senior-executive bonuses and compensation increases and hold all affiliate transactions to section 23A limits — payments or transactions outside these limits constitute noncompliance with the Directive.
- — Small Business Bank's management must halt capital distributions and dividends and restrict asset growth, acquisitions, branching, and new lines of business, and file written progress reports 30 days after the Directive and monthly thereafter — missed reports or prohibited actions are enforceable violations.
Who is affected
- — Small Business Bank's capital and treasury function
- — Small Business Bank's deposit-pricing and finance teams
- — Small Business Bank's finance and HR functions
- — Small Business Bank's senior management and board
What to watch
- — 29 July 2026 (30 days from effective date): deadline to reach adequate capitalization and to submit the deposit-rate-conforming plan; first monthly progress report due.