BANKING / FINANCE

The former operators of failed Orange County banks and savings and loans have complained over the years that conflict of interest rules prevented them from hiring a good banking lawyer to defend them in battles with regulators.

Typically, the Federal Deposit Insurance Corp. or the now-defunct Federal Savings and Loan Insurance Corp. would claim that the defense lawyers had a conflict of interest because they once represented the regulatory agency.

It seemed, former bankers would grouse, that every lawyer who knew anything about banking law had worked for regulators at one time and couldn’t handle their cases.

Now the FDIC is considering loosening its strict conflicts policy. It turns out that since the FSLIC was merged into the FDIC in mid-August, the agency has had a tough time itself finding outside lawyers to handle its cases who haven’t worked for failed institutions.

“Our conflicts rules have been very rigorous and go beyond what would be deemed as conflicts under bar rules,” said Mark Rosen, an FDIC executive who once supervised litigation over the failed Heritage Bank in Anaheim.

“We’re running into so many failed institutions that, combined with the merger of FSLIC, there are far fewer law firms we can use,” he said.

Previously the FDIC allowed law firms it used to handle legal work for S&Ls; because the thrifts were regulated by FSLIC, a separate agency. Now that FDIC also regulates S&Ls;, it finds that its outside lawyers have represented failed S&Ls.;

“We took the position before that firms could work for us but still handle S&Ls.; Now, with the merger, there is no longer the distinction between agencies.”

The FDIC has hired Stanley Kaplan, a former University of Chicago law professor, to help frame a new conflicts policy, he said.