RBC's City National Bank Troubles Continue With OCC Fine Related to Ineffective Risk Management and Internal Controls

On January 31, 2024, the Office of the Comptroller of the Currency (OCC) fined City National Bank (CNB or the Bank). Although the dollar amount of the OCC's fine is not material, it indicates that enhancements to CNB's risk management and compliance capabilities have not been commensurate with the Bank's rapid growth. Indeed, since being acquired by RBC in 2015, CNB has tripled in size, which is often a red flag. From 2019 to 2022, CNB's compounded annual growth rates were 16% for loans and 18% for deposits.

Key highlights include the following:

-- The OCC fined CNB $65 million as a result of risk management and internal control deficiencies.

-- During 2023, RBC injected $2.95 billion into CNB in an effort to stabilize the Bank's balance sheet and fortify its capital and liquidity positions.

-- Turning around CNB's financial performance will be an ongoing challenge in today's difficult operating environment. However, RBC's strong internal capital generation and capital buffers remain adequate to absorb any losses at CNB in the interim.

“The OCC fine continues a trend of concerning developments at CNB, with the Bank recording a net loss in F2023 after being negatively affected by the rapid and aggressive interest rate hikes, which resulted in CNB's high net worth clients moving their large deposits in search of yield,” said Carl De Souza, Senior Vice President, North American Financial Institutions Group. “Additionally, CNB had a notable uptick in unrealized losses in its securities portfolio, along with increased deposit funding costs. As a result, RBC injected approximately $2.0 billion into CNB in October 2023 (total infusion of about $2.95 billion in 2023) to fortify the Bank's capital and liquidity positions.”