New York (


) -- Regulators getting strict with privately-held banks and insurers about paying out dividends.

On Tuesday the

Federal Reserve


Weststar Financial Services

to refrain from paying out dividends. Similarly, a state insurance commissioner has blocked

PacifiCare Life & Health Insurance

from paying its parent company,

UnitedHealth Group

(UNH) - Get Report

a $120 million dividend.

The concern is that Weststar

may not have the capital

to maintain a stable holding company for its subsidiary, The Bank of Asheville, in North Carolina. Weststar was hit hard with commercial real estate losses and reported a net loss of $4.66 million for the three months ended September 30. The bank's net assets are $195.3 million.

The California Department of Insurance blocked dividend payouts at PacifiCare because the company is currently in court over allegations that the insurer was mishandling claims. The insurer could face a $800,000 fine and regulators say that the dividends would cut into the $773 million policyholder surplus.

PacifiCare plans to fight the regulator's ruling at a hearing scheduled Dec. 21, according to

The Sacremento Buisness Journal .

"You can't pay a dividend if you don't have the money to pay the fine," a spokesperson from California Insurance Commissioner Steve Poizner's office said to



"It is exceptionally common for regulators to direct them not to pay dividends. It is a normal first reaction. It is just making sure money is available when the bank needs it," said Lawrence Kaplan, an attorney in the corporate practice at Paul Hastings'. "Same goes for insurance companies."

--Written by Maria Woehr in New York.

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