Academic journal article ABA Banking Journal

Bank Back from the Dead? United Western Challenges OTS and FDIC over Closure

Academic journal article ABA Banking Journal

Bank Back from the Dead? United Western Challenges OTS and FDIC over Closure

Article excerpt

Can directors and shareholders successfully sue to get their bank back once an institution's doors are closed by its regulator? We are about to find out as the directors and shareholders for United Western Bank, a federal savings bank headquartered in Denver, Colo., have filed suit in federal court in Washington, D.C., to reverse the Office of Thrift Supervision's decision in January to close the bank and appoint the FDIC as the receiver. While the case is still in its early stages, the United Western litigation provides a good reminder for practitioners to review the basics of how a bank is closed and what legal recourse is available when the FDIC is asked to step in.

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Who do you sue?

While it is the FDIC that is the most public face of the government whenever a bank fails, it is the bank's chartering authority that ultimately decides when to close an institution. The FDIC's formal role doesn't start until after the bank is closed; as insurer it pays off depositors and, in its legally distinct capacity as receiver, it marshals the bank's assets and pays claims against the bank.

The good news is that federal statutes (and some state statutes as well) provide the constitutionally-necessary mechanism for challenging a decision to close an institution. For example, both the National Bank Act and the Home Owners' Loan Act provide a 30-day window to file suit to remove the FDIC once it is appointed as receiver. A lawsuit seeking to remove the FDIC as receiver substantively challenges the regulator's decision to close the bank. …

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