FDIC Addresses Three D&O Lawsuit Issues

By Byrne, Alfred J. T.; Bailey, Judith | ABA Banking Journal, October 1992 | Go to article overview

FDIC Addresses Three D&O Lawsuit Issues


Byrne, Alfred J. T., Bailey, Judith, ABA Banking Journal


FDIC's professional liability lawsuits are the subject of much criticism lately. In particular, some observers accuse us of suing too many former officers and directors of failed banks.

They claim that we sue, as scapegoats, former directors who merely got caught up in a bank crisis caused by forces beyond their control. One critic recently charged that we rely on hindsight to sue on loans that went sour merely because of general economic conditions but that were sound at the time they were made.

The consequence of FDIC's claims, our critics contend, is that able men and women are discouraged from assuming bank directorships--just when the industry needs their talents the most.

The record should be set straight. Many of these charges are based more on misinformation than fact. Repeated often enough, this misinformation may well have the effect that FDIC's critics warn against--good people will be scared off unnecessarily from becoming bank directors or, in the case of professionals such as attorneys, from taking on bank clients.

There should be no doubt that FDIC will hold people accountable for their role in bank failures, and will pursue those whom we believe were lax, irresponsible, or dishonest. But in deciding when to sue, we make careful judgments in an effort to apply the law fairly and to ensure that we'll recover more than we'll spend.

What we hope to do here is to dispel three popular myths about our suits: (1) that we sue everyone; (2) that we sue all "deep pockets"; and (3) that our lawsuits for bad loans are based on "20-20 hindsight."

Myth No. 1:

"FDIC Sues Everyone"

One statistic alone should refute this. Since 1985, FDIC has sued at least one former director or officer of about 20% of the failed banks. This indicates, among other things, the distinctions we draw regarding an individual officer's or director's involvement in specific transactions and bank policies.

Consider these figures in the context of other statistics. At mid-year 1992, FDIC had case files on 673 failed institutions--538 banks and 135 failed thrifts that had been insured by the defunct Federal Savings and Loan Insurance Corp. Most potential claims in these files are still in the investigation stage, and many will be "closed out" without filing a lawsuit.

However, from these 673 case files, FDIC had 295 pending professional liability lawsuits. These suits included 185 claims against former directors and officers (claims against multiple officers or directors from the same organization are counted as one claim in this figure); 45 against attorneys; 18 against accountants; 30 against fidelity bond carriers and against appraisers and commodities and securities brokers; and the rest from a selection of other miscellaneous categories of cases.

Since 1985, FDIC has recovered over $1.2 billion in claims against directors, officers, and outside professionals. This figure includes recoveries from banks and old FSLIC thrifts (those failing before 1989), which FDIC inherited. Although clearly a significant sum, it is only a small fraction of the total losses suffered from bank and thrift failures during the 1980s.

Interestingly, the U.S. General Accounting Office, in recent Senate subcommittee testimony, stated that FDIC's performance in investigating and litigating D&O claims "could be better" that we should be filing more lawsuits. Perhaps the criticism coming at us from both sides--that we are too aggressive or not aggressive enough-- indicates that we are striking a pretty good balance in deciding when, and when not, to sue.

Myth No. 2: "FDIC Sues All Deep Pockets"

This charge is more accurately described as a half-truth than a myth. After concluding an investigation, FDIC sues directors and officers only if two tests are met: (1) the claim is sound on the merits (both factual and legal) and (2) the claim is likely to prove cost-effective. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

FDIC Addresses Three D&O Lawsuit Issues
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.