FDIC Hides “Scores” of Bank Settlements Since 2007

The FDIC has been doing banks a big favor by agreeing not to publish the fact that they’d engaged in sufficiently wayward behavior for the agency to threaten regulatory action and negotiate a settlement. The Los Angeles Times unearthed this practice via a Freedom of Information Act request:

Three years ago, the Federal Deposit Insurance Corp. collected $54 million from Deutsche Bank in a settlement over unsound loans that contributed to a spectacular California bank failure.

The deal might have made big headlines, given that the bad loans contributed to the largest payout in FDIC history, $13 billion. But the government cut a deal with the bank’s lawyers to keep it quiet: a “no press release” clause that required the FDIC never to mention the deal “except in response to a specific inquiry.”

The FDIC has handled scores of settlements the same way since the mortgage meltdown, a major policy shift from previous crises, when the FDIC trumpeted punitive actions against banks as a deterrent to others.

The FDIC’s excuse is unpersuasive. It amounts to, “well, we publicize big settlements, why bother with these?”

In fact, this practice is yet another gimmie for banks. First, by not publicizing the settlement, it saves the target embarrassment. But far more important, it also helps them escape private litigation. A claimant has a much more persuasive suit if he can tell a judge or jury, “Look, XYZ bank engaged in this conduct, we have proof in the form of an FDIC settlement.” Mind you, it doesn’t mean for every settlement you have private litigants lurking in the wings, but given how many investors lost money in a big way during the crisis, you’d have to think that in a meaningful percentage of cases, hard evidence that a bank engaged in a particular form of prohibited behavior would be very useful to private parties.

The worst is that these secret settlements look to have become institutionalized. The only rationale I can think of (and it’s not great) is that the FDIC became overly concerned about exposing weak banks to litigation, and once it established the new pattern, it’s been unwilling or unable to roll it back. But in the S&L crisis, when the FDIC had so many dead banks drop in its lap that it had to go to Congress for additional funding, it didn’t hold back. Again from the LA Times:

Attorneys who have represented bank officials and the FDIC said regulators are now far likelier to settle cases before filing lawsuits than after the last spate of failures, when more than 2,300 institutions collapsed in the 1980s and early 1990s, bankrupting a fund that insured savings and loan deposits. That crisis grew out of Reagan-era deregulation, which allowed thrifts already hurting from 1970s inflation to make riskier investments, including commercial real estate deals that soured en masse during the second half of the 1980s.

Critics describe the FDIC’s current practice of low-profile deal-making as a major departure from the S&L crisis.

“In the old days, the regulators made it a point to embarrass everyone, to call attention to their role in bank failures,” said former bank examiner Richard Newsom, who specialized in insider-abuse cases for the FDIC in the aftermath of the S&L debacle. The goal was simple: “to make other bankers scared.”

Newsom said he couldn’t understand the shift, unless the agency doesn’t “want people to know how little they are settling for.”

The good news is that these deals are not secrecy pacts, but an agreement not to publicize a settlement. Now that the Los Angeles Times has exposed this practice, one hopes the Times and other media organizations will periodically request a list of these deals, making the “no publicity” provision meaningless. But for the FDIC to have gone down this path in the first place shows how utterly captured bank regulators have become.

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34 comments

  1. Stelios Theoharidis

    This is certainly to the benefit of these financial institutions since the lack of publicity for these settlements probably affected other civil cases. Their board of directors is a mixed bag, the obvious canary in the coalmine is Jeramiah Norton, who prior to joining the FDIC’s board, was an Executive Director at J.P. Morgan. It would be nice if the LA Times could release the 1,600 pages of FOIA documents for people to mine for potential conflicts of interest. I am curious whether FDIC could share the details with other regulators or if the settlements precluded that as well. Nonetheless, considering the track record of other regulators for failing to pursue the banks vigorously I am not certain that it would have value. To their credit some of the deals targeted at insiders including banning these individuals from the industry. Although I imagine that their golden parachutes could land them in a host of lucrative positions despite the ban. Unfortunately insurance often covered the civil penalties. Does the FDIC have the authority to pursue criminal enforcement or does that lie exclusively under the DOJ jurisdiction?

  2. Laura Roslin

    How come no bankers have gone to jail yet?

    Meanwhile, in Forsyth County North Carolina, properties were re-assessed DOWN by 40 to 70%. So many people lost equity in their homes.

    Revaluation fight continues in Forsyth County
    Posted on: 10:27 pm, March 11, 2013,

    During the recent revaluation more than 90% of homes in the county were valued lower than they were 4 years ago, some as much as 50% less.
    “They are deprecating our homes,” said Connie Wall. Her home dropped $60,000 in value, and is now worth less than she paid for it 25 years ago. “

    http://myfox8.com/2013/03/11/revaluation-fight-continues-in-forsyth-county/

    1. kimsarah

      That’s one way for a property owner to get a lower tax bill — depreciation. Unless, of course, the county adjust its tax rate to a revenue neutral rate, which means taxes will rise on property owners to let the county break even.
      In NC, counties are required to re-value properties every eight years. Eight years ago, everyone was complaining when the values shot up through through the roof. While it meant instant appreciation of property for many, it also meant a higher tax bill unless the county adjusted the rate downward.
      Bottom line: County budgets in NC are strapped, and property taxes are their major source of revenue. Some have land transfer txes that generate a lot during good times in real estate, but very little in a down market like now.
      Property owners will bear the brunt, one way or another, to bail out the counties. This is the result of trickle down austerity from Washington.

      1. Sleeper

        Are we forgetting the role of MERS in avoiding the transfer tax ?

        The tax burden falls exclusively on regular, ordinary property owners.

      2. financial matters

        A lot of public expenditures are put into making land valuable. Good roads, sewer systems, schools etc. It’s important that taxes be taken off the productive side of the economy and put more on the rentier side.

        Good article by Scott Baker… http://www.huffingtonpost.com/scott-baker/euro-economy_b_2149462.html (Gives some fiscal solutions to our problems.)

        “these new national public banks should also work with newly reformed governments to institute 100 percent full rental value Land Value Taxation, so that land bubbles such as the one that wrecked Spain, cannot ever happen again — the tax would rise in good times, to stifle rising land speculation, providing ample revenues for government, while also allowing for untaxing all productive activity — taxes on wages, sales, VAT would all go away.”

        “The ultimate political solution Spain, and the capitalist world in general, including America, needs is Land Value Taxation (LVT). LVT would return the value of the land, created because of population growth and subsequent demand, and not from anything the landowner did, back to the people of the jurisdiction. Economic rent of all kinds, but especially that of location, is calculated to be over 1/3 of GDP(economics.ucr.edu/papers/papers08/08-12old.pdf),”

        1. Tom Parsons

          Land value taxation without several years of advance notice and an honest deflator built in is just another form of theft-by-government. Imagine a government doubling the currency in circulation, thus doubling all prices (all else being equal), then collecting a tax on the “increased value” of all the land. (Who else remembers paying a nickel for the typical candy bar or bag of M&Ms? Look at today’s price and tell me the increase is reflected in official cost-of-living numbers!)

          That would simply be a surprise confiscation of a percentage of the land. Part of the class war, I suppose, but the big profits would be made by the same parties who always get rich from turmoil.

          More personally, imagine me, working all my life (and still part-time at age 67) and paying those transaction taxes (income, sales, FICA) the whole time, plus the usual local property taxes, and now finally owning some land. .

          Maybe if they could give me back my young body (and change some employment rules and practices) I could go back to work for some untaxed income to pay the land taxes, but I didn’t notice this in the proposal, and I seem to have been reading about even younger folks having some difficulty finding jobs.

          Maybe that is *really* why land needs to be taxed. It is actually there and can be seized. Many people’s incomes and future earnings prospects no longer satisfy that requirement.

          1. different clue

            That was my first thought as well upon reading this comment. A so-called “Land Value Tax” is merely an underhanded way to steal houses and lots from poor people (especially old retirees) who have nothing except the house and lot they live in and garden on.

        2. Nathanael

          Scott’s pushing the Georgist land tax. While it’s theoretically sound, it doesn’t work because it’s impossible to separate the value of land from the value of the improvements (building, etc.) on the land. And we already have property taxes.

  3. ambrit

    Friends;
    Except for a few sites like this one, where is the public outrage? Muck rakers are needed now more than ever before. Otherwise, we’ll all feel the pain of a society that degenerates towards anarchy. After all, when the ruling elites forsake the rule of law, they cannot expect the ‘rest of us’ to meekly submit to said discredited social contract. In that light, the rise of the Security State makes perfect sense.

    1. different clue

      Maybe the Security State designers expect that outrage to rise any time now.

      Meanwhile, the lack of wider outrage may be due to a wider presence of being worn out and at the edge of survival. Also, MSBM suppression of information deprives many people of outrageous information which might well still outrage people. For example, MSBM propaganda organs such as NPR news (All Things Considered, Morning Edition, etc.) strategically and tactically refer to the widespread fraud described here as “paperwork errors, for example).

      1. Nathanael

        “Maybe the Security State designers expect that outrage to rise any time now.”

        If they did, they wouldn’t be spending so much time cutting police pensions and denying veterans benefits. No, they aren’t thinking nearly that clearly.

    2. rick

      – no news to those who travel outside the us. – tne jobs experienceing the most growth in and out of the country is the police…..

    1. Susan the other

      She did not want banking to implode in a pile of dust. And she strongly advocated breaking the big banks up. She confronted the mess with a mindset that it could all be contained and fixed. But this bothers me too. Especially in view of the fact that since Sheila Bair left the FDIC, banks like BofA and JPMC have shuffled their derivatives contracts, esp their CDS contracts, into their “depositaries.” If those are the same reposits that contain the deposits which the Federal Deposit Insurance Corporation covers, we are in deep shit. And the expense of covering this “liability” will not be carried by the small fund paid for by premiums charged to the banksters to maintain the FDIC. Don’t like that thought.

    2. Murky

      Please do nor unjustly impugn Sheila Bair. I read her book, Bull by the Horns, and I doubt that Bair instigated any no-publicity practice regarding bank failures. That practice was probably in place long before Bair took the job at the FDIC. She operated in a regulatory environment in which she often had to build consensus with the other bank regulators at Treasury and the OCC. She did not have unilateral authority to reverse every bad regulatory practice.

    3. Andrew Watts

      Likely not much. In any case it’s a fatal mistake to attribute these shenanigans to solely the individual level. When the rot extends to the institutional level. It’s an important matter of scale.

      Though I can’t help but feel a bit personally satisfied for attacking Bair’s version of the financial crisis as aself-serving rationalization.

      Took a bit of flak from Yves for that.

    4. Ms G

      @Murky. Well, the LA Times, at least, is reporting that the secret, non-public, FDIC settlements with the banks is a practice that *began* in the wake of the Great Crash, whereas previously (again, the LA Times reports) FDIC typically *trumpeted* the resolution of actions that it took against banks. Sheila Bair was the person in charge of FDIC when this rather fundamental shift took place. So it is not unreasonable to identify her as, at the very least, a very important participant in allowing this new policy to become fact.

      The fact that she never mentioned this in her book is really quite irksome and suggests that it was a project she did in order to airbrush herself out of the nasty aspects of the Obama Administration’s handling of GFC’s aftermaths.

      ====

      Here is the relevant quote from the LA Times as excerpted in Yves’ lead post:

      “The FDIC has handled scores of settlements the same way since the mortgage meltdown, a major policy shift from previous crises, when the FDIC trumpeted punitive actions against banks as a deterrent to others.”

      1. MichaelC

        I’m with STO and Ms G on this one.

        I admire Sheila Bair, but ignoring to tell the whole truth, which her book and book tour and her whole post FDIC career purport to do, doesn’t smell quite right.

        Now that its public, she needs to comment on her role, and her reasons for not doing mentioning it earlier.

        I’ll listen.

  4. diptherio

    We have to demand careers on pikes from these good-for-less-than-nothing regulators. I can’t believe we pay these people…for what? How is anyone supposed to buy the neo-con arguments about “reputational risk” keeping bankers in line, when the FDIC is going out of it’s way to make sure no one finds out about bad behavior? In general, I’m opposed to water-boarding, but stories like this make me reconsider my position…

    1. Jim Shannon

      Criminal – CentaMillionaire$ and Billionaire$ – are NOT being prosecuted because they OWN government – ALL THREE BRANCHES! Corruption of these FEW individuals has ruined it for the 99.99%! A simple fact the 99.99% refuse to recognize!

  5. TomDor

    Bill Black…calling Bill Black… please correct some of the verbiage in the above article. Like the following. ‘bad loans’= ‘criminal’ or ‘fraudulent loans’. “when the FDIC trumpeted punitive actions against banks as a deterrent to others.” = When the FDIC pursued criminal actions…

    “That crisis grew out of Reagan-era deregulation, which allowed thrifts already hurting from 1970s inflation to make riskier investments, including commercial real estate deals that soured en masse during the second half of the 1980s.” = Banks did not make riskier investments, they practiced controll fraud – the best way to rob a bank is to own one… they were buying the bank to rob the bank by fraudulently inflating property prices to steal the loan money.

    “In the old days, the regulators made it a point to embarrass everyone, to call attention to their role in bank failures,” said former bank examiner Richard Newsom, who specialized in insider-abuse cases for the FDIC in the aftermath of the S&L debacle. The goal was simple: “to make other bankers scared.”
    ’embarrass everyone’ = how about ‘prosecute criminals’
    ‘bank failures’ = bank robbery committed by the owners of said bank.
    ‘Abuse’ = Fraud = control fraud
    ‘make other bankers scared’ = how about let other bankers know that they will get caught and prosecuted to the fullest extent of the law.

  6. Uncle Bob

    Yep, just read about this in this morning’s mercury-News’ Business section on pg.B3 of the 4 page section..LOL! On the Front Page? A headline story about Ants, next to the ubiqitious story about Google vs. Apple!
    Again, more surreality; The FDIC?! What is the difference between the Government and the Corporation?

  7. Max

    It is common practice for defendants in civil or administrative cases to request that the settlements will not be publicized. Usually these requests are demurred, and would never be included in the actual settlement agreement.

    The statement by Paula Silver of Quicken Loans is misleading: “Quicken Loans and the FDIC entered into a ‘confidential’ agreement nearly three and a half years ago which clearly states that no party admits liability nor wrongdoing.” The settlement agreements usually do contain a boilerplate statement that denies liability, but it is impossible to enter into a confidential agreement with a government agency.

    That being said, the optics are terrible for the FDIC, since I’m sure these cases were settled for pennies on the dollar, and the lack of publicity benefits the government as much as the defendant banks.

    1. Uncle Bob

      I believe Lawrence Lessig or Joe Stiglitz said this, can’t remember which; “..a government of the 1%, by the 1%, for the 1%”

  8. BondsOfSteel

    I used to believe that the government was for the people by the people. What a naïve child I was just a few years ago…

  9. DWoolley

    In reading Bull by the Horns by Sheila Bair (Chairperson of the FDIC 2006-2011) I missed the chapter on the settlements having non-publicity clauses. I thought of her as one of good guys fighting Tim Geithner on behalf of the taxpayers. This is disheartening news.

    It appears as though the management of the regulatory agencies is completely captured, which must be destroying the moral of the rank and file law enforcement agents. It is a bad situation.

  10. sierra7

    American foreign policy actions depend on the theory of “American Exceptionalism”….It seems that that policy is extended to the major elites of the financial industry….”Financial Actions Exceptionalism”.
    Alas, we now hide behind too many mirrors that if not “fun housed” would clearly reveal the rot in our government in toto…..

  11. Andrew Watts

    The cult of personality that surrounds Sheila Bair spared the FDIC of most of the criticism that it quite rightly deserves.

    But finally some details on the FDIC and their torrid little affair with the banks is coming to light. Once again we see that our regulators are far from neutral umpires deciding the game but actively favoring one side over another.

  12. Ms G

    The concealment of settlments by the FDIC is an egregious breach of the public trust, and profoundly undermines any contention that customers or investors have full information on which to base any decision. In fact, it borders on abetting fraud by omission vis a vis interested parties, for obvious reasons.

    There is other information that FDIC needs to make public immediately — though this should have been done five years ago (an impossibility given Obama and Geithner).

    What is the true value of the undeclared losses that American banks have been hiding with the vigorous assistance of the Obama Administration, Mr. Geithner, et al?

    A group of shareholders in Great Britain has made public an estimate that the *British* banks may be hiding as much as 50 Billion Pounds (billion, yes). Citi, JP Morgan, Goldman, Wells Fargo, Bank of America can’t be that far off. Could FDIC please speak up?

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9922668/British-banks-may-have-30bn-hidden-losses.html

    A group of shareholders in Britain

  13. Jeff N

    “But far more important, it also helps them escape private litigation. A claimant has a much more persuasive suit if he can tell a judge or jury, “Look, XYZ bank engaged in this conduct, we have proof in the form of an FDIC settlement.”

    is this why settlements always say “the defendant admits no wrongdoing”?

  14. Nathanael

    It is not enough for justice to be done. Justice must be SEEN to be done.

    This is a basic principle of the legal system. Which is currently being ignored by the people in power. Bad move; it’s discrediting the entire government.

Comments are closed.