The FDIC could pursue litigation against officers and directors of failed community banks in 2013.
Data from Cornerstone Research, a consulting firm that advises lawyers who represent bank directors, revealed that the FDIC had filed 23 lawsuits through the beginning of December. Last year the FDIC filed 16 lawsuits against bank officers, American Banker reports.
While the average size of failed banks at the center of its lawsuits was $1.2 billion in the first quarter of the year, the average size dropped to $154 million in the fourth quarter, and the FDIC is expected to file even more lawsuits.
Kevin LaCrois, a lawyer who maintains the blog D&O Diary, said that the possibility of more lawsuits has “historical credibility.” After the savings and loan crisis in the 1980s, federal regulators filed lawsuits related to almost 25 percent of failed institutions. At present, regulators have only filed against nine percent of the institutions that failed during the recent financial crisis.
Greg Hernandez, a spokesman for the FDIC, said that the FDIC investigates the reasons behind the bank’s failure.
“If it’s found that a bank’s former directors and officers played a role in the institution’s failure, the FDIC will file professional liability lawsuits,” Hernandez said, according to American Banker.
A number of factors contributed to the recent increase in lawsuits. A number of bank failures are approaching a statute of limitations deadline. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 allows for a period of three years for regulators to file lawsuits.
“The high-water mark of bank closures was the latter part of 2009 and early 2010,” LaCroix said, American Banker reports. “So you will be running up against the statute in a lot more bank failures. All else being equal, it leads you to think there will be more lawsuits.”