FDIC Lawsuits Increase in Fourth Quarter, Many Target Smaller Banks and Thrifts

This is the fourth in a series of reports that analyzes the characteristics of professional liability lawsuits filed by the Federal Deposit Insurance Corporation (FDIC) against directors and officers of failed financial institutions.

Report Summary

• The pace of FDIC D&O lawsuit filings has increased in the fourth quarter of 2012 compared to earlier in the year. The number of lawsuits filed in 2012 exceeds the total filed in 2010 and 2011.
• On December 7, three former officers of IndyMac’s Homebuilder Division were found liable for $169 million in damages in connection with 23 loans. This was the first FDIC D&O lawsuit associated with the 2008 financial crisis to go to trial.
• While there has been a continued decline in FDIC seizures throughout 2012, the number of problem financial institutions has not declined as rapidly.
• Institutions that are subject to D&O litigation have historically been larger (in terms of assets) with higher estimated costs of failure than the average failed financial institution. The FDIC’s recently filed D&O lawsuits have targeted smaller institutions.
• Named defendants primarily continue to be CEOs, then (in declining order of frequency) chief credit officers, chief loan officers, chief operating officers, chief financial officers, and chief banking officers. Outside directors continue to be named along with inside directors in a large majority of the new filings.
• Regulatory management ratings and composite CAMELS (capital adequacy, asset quality, management, earnings, liquidity, sensitivity to market risk) ratings of institutions that are subject to D&O lawsuits do not appear to have deteriorated until one to two years before failure.