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Robert Trigaux

FDIC's 50 criminal investigations of failed banks: Good oversight or CYA?



FDICsign.gifWake up and good morning. It's probably a good day not to be a banker given the Wall Street Journal's report that the Federal Deposit Insurance Corp. is conducting about 50 criminal investigations of former executives, directors and employees at U.S. banks that have failed since the start of the financial crisis.

That's dandy. America loves it when federal regulators get tough and go after the bad guys. Too bad that's not what's happening here. The FDIC is chasing execs and directors of failed banks -- and the regulator may nab a few legitimate fraudsters -- but this is as much a federal CYA exercise as anything else. Where were bank regulators before those 311 banks failed (since 2008)?

The FDIC is not disclosing which banks nationwide it is pursuing but you can be sure that Florida banks will  be among them. Of the 311 institutions shuttered in the past three years, 46 or roughly 15 percent of them are based in Florida. Combine that with the real estate nightmare in the Sunshine State and odds are good that federal regulators will zap a couple senior lenders at failed Florida banks along the way.

According to the Wall Street Journal, pressure is high on regulators to identify and prosecute bankers for any wrongdoing that contributed to the largest number of failures in nearly 20 years. The FDIC isn't the only bank regulator (there's the Federal Reserve, the Comptroller of the Currency and state regulators, too) but it is the FDIC whose insurance fund must pay off federally-insured depositors and absorb other hits when banks fail. Here's the complete WSJ story.

Attorneys who specialize defending failed banks and their leaders tell me the FDIC will find it tough to assign legal blame to bankers who suffered through a deep recession. But you can be sure we'll soon be reporting on specific Florida banks, now failed, and their executives and directors who are not in the FDIC lawyers' gunsights.

Comments the Business Insider here: "It's lame that they're all in failed banks, which really just suggests that what's being criminalized here is failure. Did people really not do some of the same bad behavior at banks that managed to hold on?"

-- Robert Trigaux, Times Business Columnist

[Last modified: Wednesday, November 17, 2010 6:45am]


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