City National Bank was fined $65 million on Wednesday by federal regulators for failing to maintain proper risk management and internal controls, including those related to money laundering.
Long known as L.A.’s “bank to the stars” for its close ties to the entertainment industry, the bank entered into a civil consent order with the Office of the Comptroller of the Currency to clean up what the regulator called “systemic deficiencies in the bank’s risk management and internal controls.”
The bank, the largest headquartered in Los Angeles, did not admit to or deny the regulator’s findings. It released a statement saying it planned to address the issues.
“City National, and our new executive management team, are committed to resolving the matters identified in the OCC’s order as quickly as possible. Our focus will continue to be on both strengthening our infrastructure and systems to reflect a bank of our size and business model, while at the same time providing our clients with consistently outstanding banking products and services,” said the statement by Diana Rodriguez, City National’s chief communications officer.
The consent order requires the bank to name a compliance committee of at least three people that has a majority who are not directors, officers or employees of the bank or its subsidiaries or affiliates. The committee must then monitor the bank’s effort to fix its deficiencies.
City National underwent a management shuffle in November. Chief Executive Kelly Coffey was replaced by Howard Hammond, a veteran executive at Fifth Third Bancorp in Cincinnati. Coffey, who had run the bank since 2019, was moved to head the City National Entertainment unit, with clients across the industry.
Last year, City National paid $31 million to settle a U.S. Justice Department lawsuit that accused the bank of violating federal housing and banking discrimination laws in Los Angeles County by avoiding loans to buyers of homes in neighborhoods that are majority Black or Latino.
City National denied breaking discrimination laws but said it wanted to avoid prolonged litigation. It agreed to a number of steps to make more loans to minorities, under a proposed settlement.
Founded in 1954 in Beverly Hills, City National grew strongly since it was acquired in 2015 by the Royal Bank of Canada, which coveted its wealthy client base and long history or profits.
However, RBC, Canada’s largest bank, had to inject at least $2.95 billion into City National last year largely because of huge unrealized losses on City National’s debt securities. Rapidly rising interest rates devalued bank securities last year and were a key factor in the crisis that saw multiple bank failures.
In a statement issued Wednesday, RBC said it was focused on addressing City National Bank’s “risk management capabilities” after “outsized volume growth over the years.”
“The client franchise and the long-term potential at City National is very strong, and we are confident in the long-term, sustainable success of this U.S. platform,” said the statement issued by Sanam Heidary, RBC’s global head of communications.
