BANK DIRECTOR AND OFFICER LIABILITY IN FDIC CASES: IMPLICATIONS OF THE LOUDERMILK TRIAL
The Great Recession resulted in the largest number of bank closures in the US since the Savings and Loan crisis of 1987–1991. In conjunction with its appointment as receiver of the closed institutions, the Federal Deposit Insurance Corporation (FDIC) has also been empowered to bring claims against former bank directors and officers (D&Os) for gross negligence or, if permitted by state law, a higher standard of care such as negligence, for losses incurred by the FDIC as receiver. Over the past eight years, the FDIC has filed claims against former D&Os of 109 of the 545 closed banks – a 20 percent litigation factor – which is a conservative accounting of D&O exposure, given that a number of FDIC demands were settled prior to the filing of a complaint. The complaints filed by the FDIC generally allege, among other things, failures in the banks’ lending function, resulting in risky lending practices, such as failure to perform proper due diligence in the lending process, over-concentration in particular borrowers or types of loans, violations of the bank’s internal loan policy, expansion without adequate risk controls, disregard for regulatory warnings about the housing market and the economy, inadequate documentation for loans and failure to supervise loan officers or the lending function of the bank.
Jan-Mar 2017 issue
Alston & Bird LLP