Law Suits & Courts

FDIC v Failed Bank Directors

Posted on Tuesday, October 12, 2010

The Federal Deposit Insurance Corporation is poised to sue over 50 executives from failed banks, Bloomberg News reports.
The potential lawsuits would help the FDIC recover more than $1 billion it lost during the credit crisis, which has forced the FDIC to take over 294 lenders since 2008. So far the FDIC, which, according to Bloomberg, doesn't sue unless it believes the defendant is able to pay up, has only filed one lawsuit related to the credit crisis, against IndyMac executives in July.
After sending heads-up letters to potential targets of litigation, the FDIC has bared its claws. "We could walk into court tomorrow and file the lawsuits," FDIC general counsel Richard Osterman told Bloomberg. During the savings-and-loan crisis of the 1980s, the FDIC sued executives from more than 24 percent of the banks that failed.
The credit crisis of 2008, precipitated in part by a housing market collapse, eroded companies' ability to do business. The FDIC, which insures bank deposits, had its hands full as banks buckled in response to runs on their deposits. The failure of Washington Mutual was the largest in U.S. history. As the crisis has largely subsided, the FDIC now seeks to recover some of its losses.
Court victories for the agency would force bank executives to pay some portion of the compensation they received from their banks. Government regulators, endowed with new powers by the July financial reform legislation, are currently drafting rules for curbing executive pay, which regulators say in the past has inspired excessive risk-taking.
Huffington Post William Alden


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