Pedestrians walk outside CIT headquarters in New York, US, on July 10, 2009.

CIT Group Inc., the 101-year-old lender fighting to avoid collapse, reached an agreement with the Federal Reserve to submit proposals on how it will maintain adequate capital and improve risk management.

“The real question in my mind is what took them so long” to enact an enforcement order, said Gilbert Schwartz, a former Fed attorney and now a partner at law firm Schwartz & Ballen LLP in Washington. The central bank may have been waiting until after the government’s rejection last month of additional aid to the company and wanted to make sure the lender wasn’t headed immediately for bankruptcy, Schwartz said.

CIT got US$2.33 billion from the Treasury’s bank rescue fund last year. Efforts to get more US help collapsed July 15.

The lender, which has reported $3 billion of losses in the past eight quarters, will need to provide daily reports on its cash position. CIT also must improve its internal credit-risk ratings system, provide a plan for determining reserves against bad debts, and within 15 days submit a capital plan to maintain sufficient cash at CIT and its subsidiary bank.

CIT must also draft a “longer-term funding plan that includes strategies that do not rely on US government funding programs or regulatory or supervisory waivers or exemptions,” the Fed said.

In related news, CIT made an out-of-court settlement with apparel maker Scherr Inc that sued to end its relationship with the company, the New York Post said, citing sources.

CIT steered clear of the risk of a ruling that might have caused a mass exodus of clients at its “factoring” division, which finances inventory for more than 60 percent of the apparel industry, the paper quoted legal experts as saying.

Source: Bloomberg