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FDIC settlement policy favors banks

Posted by Elena del Valle on March 18, 2013

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In the past five years 471 banks have failed in the United States. Their failure has resulted in $95.5 billion in losses and nearly emptied the Federal Deposit Insurance Corporation (FDIC) coffers.

According to a Los Angeles Times article, the FDIC policy has been to settle and keep the information out of the public eye. Relying on the Freedom of Information Act the California newspaper obtained 1,700 pages of FDIC settlements from 2007 to this yea. The settlements with bank insiders were for fraud, negligence, reckless loans, falsified documents, inflated appraisals and lender refusals to purchase back bad loans.

One of the most noteworthy settlements was for $54 million with Deutsche Bank, the world’s largest bank today, over unsound loans that led to a huge bank failure. The bad loans, the article outlines, played a role in the largest payout in history for $13 billion. Because government representatives struck an agreement with the bank with a no press release clause the FDIC was required to remain silent about the terms save in case someone asked specifically about it.

While in past decades the FDIC used to make public punitive actions against banks now the policy is of settle and silence. Since the mortgage crisis the FDIC has settled many agreements in the same way as the Deutsche Bank deal, the article indicates. Such non disclosure agreements are said by some to violate the spirit of the laws that regulate the FDIC.

According to the corporation’s website, “The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring depositors for at least $250,000 per insured bank; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.”

Although the FDIC maintains a Problem Bank List with the names of institutions likely to have weak capital positions that could results in failure, fearful of the consequences the Corporation does not publicize the list. An unofficial list with a higher number of banks developed from public sources was published December 7, 2012 by ( The list includes the name of each bank, its FDIC number, assets for the most recent quarter, class, agency it falls under, city, state, date of action, type of enforcement action, reason, corrective action when taken and the date it took place, and the ticker.

According to, as of the end of last year there were 651 problem banks on the FDIC list, reflecting a slight decline from 694 on September 30, 2012; the number of Problem Banks has declined for seven quarters in a row from 888 at March 31, 2011. The website compared the official and unofficial Problem Bank lists concluding there are 805 institutions in the unofficial list compared to 651 on the official FDIC confidential Problem Bank List.