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FDIC Under Scrutiny For Not Announcing Settlements

The Federal Deposit Insurance Corporation (FDIC) has been complying with a “no press release” clause added to its settlements by banks that break the law. The clause is added to keep the regulator quiet on reputation damaging legal settlements. Typically settlements are announced by regulators in hopes of deterring would be law breakers but the FDIC has changed its previous policy without explicitly stating why.

Since 2007, 471 U.S. banks have failed, nearly depleting the FDIC deposit-insurance fund with $92.5 billion in losses. Rather than sue, the agency has typically preferred to settle for a fraction of the losses while helping the banks avoid bad press.

Under the Freedom of Information Act, The Times obtained more than 1,600 pages of FDIC settlements, made from 2007 through this year with former bank insiders and others accused of wrongdoing. The agreements constitute a catalog of fraud and negligence: reckless loans to homeowners and builders; falsified documents; inflated appraisals; lender refusals to buy back bad loans.

What an odd game. During the Savings and Loan Crisis a law was passed banning secret settlements which means no matter how poorly the FDIC is negotiating with criminal bankers they can not agree to keep the settlement secret. Instead the FDIC merely agrees not to announce the deals in hopes that no one looks for the information.

FDIC spokesman David Barr said the agency always tries to settle failed-bank cases before filing lawsuits and that it announces settlements only when damage payments are large and media interest intense…

Barr says attorneys representing the FDIC make clear to the defendants that, although it will not publicize settlements, it also cannot legally keep them secret.

But why not announce it? Isn’t the point of settling in the first place to punish the guilty but avoid costly trials? Sending a press release is practically free and lets everyone know that certain practices will not be tolerated by regulators. Secret deterrence is a contradiction in terms and an open invitation to continue treating crime as a business expense.

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Dan Wright

Dan Wright

Daniel Wright is a longtime blogger and currently writes for Shadowproof. He lives in New Jersey, by choice.