Would FDIC deter wrongdoing by announcing settlements with banks?
On its website, the Federal Deposit Insurance Corp. says pursuing damages when banks fail is a way to restore public confidence in the industry.
Doing so, it says in an analysis of the savings and loan crisis of the 1980s, creates “the perception as well as the reality that directors, officers and other professionals at financial institutions are held accountable for wrongful conduct.”
But can confidence be restored if the public doesn’t know the FDIC is going after the directors and officers and the professionals who did business with them? A Times investigation shows the agency has only rarely made public its settlements of claims against insiders in the latest wave of failures.
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The Federal Deposit Insurance Corporation Improvement Act of 1991, passed in reaction to the S&L; debacle, included a ban on keeping such settlements confidential.
The provision doesn’t require the FDIC to call attention to its settlements with bank insiders. But not doing so “violates the spirit of the law, which calls for open enforcement actions and publication of formal enforcement actions,” said Sausalito attorney Bart Dzivi, a former Senate Banking Committee aide who drafted the provision.
Dzivi said it never occurred to him at the time that the FDIC would not announce financial settlements with former bank officers and directors accused of wrongdoing, or settlements with big Wall Street powerhouses such as Deutsche Bank.
Deutsche Bank, currently the largest bank in the world, agreed in December 2009 to pay $54 million to settle claims that soured mortgages from its subsidiary MortgageIT contributed to the failure of Pasadena-based IndyMac Bank, which cost the FDIC $13 billion.
FDIC spokesman David Barr said a “no press release” clause in the Deutsche Bank settlement had been approved by lawyers for IndyMac before the failure. While retaining the secrecy provision, the FDIC made clear to Deutsche Bank that the FDIC would be required to reveal the settlement if asked, Barr said.
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In major policy shift, scores of FDIC settlements go unannounced
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Former IndyMac CEO Michael Perry settles FDIC’s negligence claim for $1 million
