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As the global financial crisis has receded further into the past and as other issues have crowded to the top of the agenda, the remaining vestiges from the credit crisis have faded into the background. But though the peak of the crisis is now nearly seven years behind us, the crisis remnants continue to work their way through the legal system. In particular, a large part of the wave of failed bank litigation that the FDIC filed against the former directors and officers of many of the U.S. banks that have failed continues to grind on, as evidenced in the FDIC’s latest professional liability litigation update, which the agency posted on its website on July 28, 2015 (here).
According to the agency’s updated webpage, the agency has now filed a total of 108 lawsuits – which means, given that there have been a total of 513 bank failures since January 1, 2008, that the agency has (so far) wound up filing a lawsuit in connection with approximately 21 percent of all bank failures. (As discussed below, the agency continues to file lawsuits and banks continue to fail — albeit both at reduced rates compared to recent years — which means that these numbers and percentages could change before all is said and done.)
The agency also reports that it has authorized lawsuits in connection with 150 bank failures, meaning that the agency has authorized lawsuits in connection with 29 percent of all bank failures. Although the fact that the authorized lawsuit number is larger than the filed lawsuit number could mean that there is a large backlog of yet-to-be-filed lawsuits, the fact is that not all of the authorized but not yet filed lawsuits will ultimately be filed. In some cases, the agency has managed to work out settlements with or on behalf of prospective defendants without the need to actually file a lawsuit.
The numbers of directors and officers against whom the agency has authorized lawsuits has also recently fallen off significantly. In connection with the lawsuits that the agency has authorized so far in 2015, the FDIC has authorized filing suits against 26 former directors and officers, compared with 123 in 2014, 316 in 2014, and 369 in 2012 (which was the high water mark).
The 108 lawsuits that the agency has filed so far have been filed in a total of 27 states and Puerto Rico. The states with the largest number of lawsuit filings so far are Georgia (25); California (15); Florida (12); and Illinois (12). The fact that these states are the ones with the largest number of lawsuits is hardly a surprise, as these states are also the ones that have had the largest number of bank failures, as discussed below. These four states account for nearly 60 percent of all of the failed bank lawsuits (while at the same time accounting for about 51 percent of the bank failures, as discussed below.)
Though the agency has continued to file lawsuits in 2015, the pace of the agency’s lawsuit filing definitely has slowed. So far, the agency has filed only three lawsuits so far this year, compared to 21 in 2014 and 29 in 2013. The agency has filed a lawsuit as recently as July 1, 2015, when it filed a lawsuit in the Southern District of Georgia in connection with the failure of the Montgomery Bank & Trust of Ailey, Georgia. (A copy of the complaint in this most recent action can be found here.) It should be noted that the agency website incorrectly states that this latest lawsuit was filed September 1, 2015 (which would represent quite a feat if the agency could already have pulled that one off); in fact, the latest lawsuit was filed on July 1, 2015.
While the agency is continuing to file failed bank lawsuits, many of the lawsuits the agency has filed have been resolved. The agency reports that 62 of the 108 cases that it has filed have been settled, meaning that more than half of the cases it has filed have been resolved. Of course, that also implies that around 46 remain pending, so these cases will continue to work their way through the courts for some time to come.
Though, as noted at the outset of this post, the credit crisis is now well in the past, banks are continuing to fail, again at a much reduced rate compared to recent years. So far in 2015, there have been six bank failures, including a bank failure as recently as July 10, 2015. By comparison, there were 18 bank failures in 2014 (the lowest annual number since 2007), and 24 in 2003. The high water mark for annual number of failed banks following the financial crisis was in 2010, when there were 157 bank failures.
As noted above, the states with the highest number of failed bank lawsuits were Georgia, California, Florida and Illinois, which are also the states with the highest number of bank failures; Georgia has had 88 bank failures since the current bank failure wave began, while Florida has had 72; Illinois, 62; and California, 40. These four states alone account for 51 percent of all of the bank failures during the current era.
Conspicuously, Georgia leads the league in terms of numbers of bank failures and numbers of failed bank lawsuits. With 25 lawsuits out of 88 bank failures, 28.4% of the bank failures in the state resulted in lawsuits. Georgia not only topped the tables in these two categories, but a greater proportion of its bank failures resulted in lawsuits than was the case for the country as a whole.
Though banks have continued to fail even as recently as this month, it seems probable that the continued numbers of bank failures will eventually peter out. According to the FDIC’s latest quarterly banking profile (here), as of March 31, 2015, there were 253 “problem institutions,” compared to a high water mark of 884 problem institutions as of the end of 2010. Not all of the reductions in these numbers are due to the fact that the banking sector has recovered since the financial crisis; some of these reductions are due simply to the numbers of bank failures in the interim, as well as to M&A activity, as the problem institutions have been merged out of existence.
One result of these failures and mergers is that there are now many fewer banking institutions in the U.S. than there once were. In 1990, there were a total of 15,158 banking institutions in the U.S. As of the date of the FDIC’s latest quarterly banking profile, there were only 6,419 banks in the U.S., representing a decline of over 57% during that 25-year period. Moreover, 89.2% of all of the remaining banks have assets of under $1 billion. Indeed, 28.5% of the remaining banks have assets of under $100 million. In the interim, very few new banks have been formed. Given how many of the remaining banks are very small, it seems likely that the number of banking institutions in the U.S. will continue to shrink.
A Buyer’s Guide to Cyber Liability Insurance Coverage: In recent days, I have posted a number of items about cyber liability insurance, including a number of guest posts. All of these items have been well-received, which suggests that this blog’s readership has an active interest in issues concerning cyber liability insurance. For that reason, I am sure readers will be interested to know that they can obtain for free a copy of the publication of Holland & Knight law firm partner Thomas Bentz entitled ““A Buyer’s Guide to Cyber Liability Insurance Coverage.” Information about the publication, including instructions on how to obtain either a hard-copy or electronic version of the publication, can be found here. Special thanks to Tom for allowing me to link to his publication.
Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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