But the regulator has sued only a handful of officers and directors to recover some of that money, despite a pattern of risky behavior by executives at many failed banks described by the agency’s own watchdog in a recent analysis.
To date, the FDIC has sued officers and directors at only five of the 345 banks that have collapsed since 2008, or about 2 percent. The 39 former executives named in the civil lawsuits are fighting the FDIC’s accusations of negligence and mismanagement. And time is running out for the FDIC to file lawsuits in some of the early bank failures because of a three-year statute of limitations.
At this pace, critics say, the FDIC is falling short of what banking regulators did a generation ago in the U.S. savings-and-loan crisis, when they sued officers and directors at about one-quarter of the more than 1,000 institutions that failed.
“In all areas, the FDIC has been far later and far weaker in terms of enforcement than during the S&L crisis,” said William Black, a University of Missouri-Kansas City law professor who was a top lawyer at the Office of Thrift Supervision and its predecessor when U.S. savings-and-loan thrifts were collapsing in the late 1980s and early 1990s.
“The cases should be strong, given that they had so many warnings,” he said.
The FDIC said the criticism is premature.
The agency typically takes 18 months to investigate a bank failure, FDIC spokesman David Barr said. If the agency finds evidence of wrongdoing by executives or board directors, it first holds settlement talks, which can go on for months, before suing.
With the wave of U.S. bank failures not cresting until 2009 and 2010, Barr said the FDIC still has plenty of time to sue officers and directors whose misconduct led to a bank’s collapse.
On March 1, the FDIC sued four former bank directors and officers of Corn Belt Bank and Trust in Illinois for $10.4 million. It was the agency’s third lawsuit filed this year against a failed bank.
But Barr cautioned that not every bank failure will result in a lawsuit. The purpose of the civil lawsuits, he said, is to hold bank leaders accountable if they did something seriously wrong.
“We have to be careful and judicious before filing,” he said. “We don’t want there to be a chilling effect on open banks that are seeking to find qualified board members.”
Although public attention has focused on the Wall Street banking giants that packaged toxic pools of mortgages into little-understood securities, some community banks also fueled the financial crisis by making unsound loans, paying loan officers based on loan quantity instead of quality, and investing too heavily in real estate loans.
One such bank was Integrity Bancshares of suburban Atlanta, which promoted a “faith-based” business model that included free Bibles for customers.