Failed bank lawsuit this year area on pace to total the largest annual number of lawsuits yet during the current bank failure wave, according to an April 2013 report from Cornerstone Research entitled “Characteristics of FDIC Lawsuits Against Directors and Officers” (here). The report identifies several factors – including the FDIC’s recently published settlement data – that the authors believe that “together suggest that substantially more FDIC cases may be filed in upcoming months.”


The report notes that as of April 22, 2013, the FDIC has filed twelve lawsuits against former directors and officers of failed banks during 2013. (I am aware of at least two additional suits that have been filed since that time; refer here, second item for the most recent). That brings the total number of lawsuits that the FDIC has filed since 2012, as of that date, to 56. The authors project that at the current filing rate, 2013 filings could total as many as 39.


Given the three year lag that generally follows after a bank fails before the FDIC files suit, and given that the peak number bank failures took place between the third quarter of 2009 and the third quarter of 2010, “this year will likely be a peak period for new filings.”


Though lawsuits have continued to emerge this year, bank failures themselves have slowed considerably during 2013, with only eight for the year so far compared to 51 during all of 2012. Since the beginning of 2007, 476 banks have failed. The authors project that as many as 26 banks total could fail this year.


To date, 12 percent of bank failures have resulted in D&O lawsuits. The lawsuits generally have targeted larger institutions and those whose failures produced larger costs. To date the FDIC has filed lawsuits against 21 percent of the banks that failed in 2009 and against 10 percent of banks that failed in 2010.


As I noted in an earlier post, the FDIC recently began publishing on its website information regarding settlements the agency has reached in connection with bank failure claims and lawsuits. The authors of this report have done the hard work of going through all of the settlements that agency has posted on its website.


Among other things, the authors report that the FDIC has obtained aggregate settlements of $601 million — $115 million attributable to filed D&O lawsuits; $216 million attributable to 33 claims involving directors and officers of failed banks that did not result in a complaint; and $270 million attributable to claims against professional firms and non-D&O individuals. As many as 17 of the settlement agreements required out-of-pocket payment by individual directors and officers. The out-of-pocket payments totaled $8 million.


The report is interesting and worth reading in full. The authors merit our gratitude for working through and summarizing the settlement information on the FDIC’s website. The report contains a number of interesting insights, such as, for example, the authors’ observation about the number of settlements in which directors and officers were required to make out-of-pocket contributions to the settlements.