Laws In Texas

FDIC as Receiver after the 2008 Financial Crisis – The Quietly Settled Deutsche Bank Legal Court Cases

Since the mortgage meltdown, the FDIC has opted to settle cases while helping banks avoid bad press, rather than trumpeting punitive actions as a deterrent to others.

Deutsche Bank and the FDIC have been locked in legal battle for years.  Deutsche Bank is suing the FDIC for an estimated $10 billion.  Cases are pending in the DC District Court and the 9th Circuit.  One case, in which it has an interest, is coming to a head in the US Court of Appeals, DC Circuit, today.

The cases weren’t mentioned in the pair of articles the LA Times ran accusing the Federal Deposit Insurance Corp. of shielding banks from negative press by keeping its settlements with them secret and asking whether announcing the settlements would deter wrongdoing.

“Since the mortgage meltdown, the FDIC has opted to settle cases while helping banks avoid bad press, rather than trumpeting punitive actions as a deterrent to others.”

The FDIC has a valuable mission protecting consumers in case of a bank failure. It’s an example of how We, the people, collective our power and keep predatory business practices in check. An accusation that the FDIC is in cahoots with banks is serious and it needs solid substantiation. The article says:

“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 . . . Defendants benefit by settling because they can avoid admitting guilt and limit the damages they might face in court. The FDIC benefits by collecting money without the hassle and expense of litigation. The no-press-release arrangements help close those deals.Deutsche Bank, now the world’s largest, settled to resolve claims that subsidiary MortgageIT sold shaky loans to Pasadena-based IndyMac Bank.

Bank, which imploded under the weight of risky mortgages and construction loans.”

Any sensible citizen would object to the FDIC shielding a bank from bad publicity but the article offers no proof it was doing that.  It’s much more likely that the FDIC settled with no press release because it didn’t want to jeopardize the outcome of other pending matters in federal court.  The FDIC may have been legally prevented from issuing a press release because of the pending cases.

The FDIC got tangled up with Deutsche Bank because of the Washington Mutual Bank failure in 2008 which was even bigger than the IndyMac Bank failure referenced in the LA Times article.  The FDIC, attempted to recover damages from Deutsche Bank, for the fraudulent mortgages issued by its subsidiary, MortgageIt, and for selling them to Wamu. Deutsche responded by filing suit against the FDIC.

Update on Settlement Reached by FDIC in 2017 pertaining to some of the cases listed herein can be Read Memorandum and Opinion (Amended) Online Here and Settlement Here

Here’s the case information:

Deutsche Bank National Trust Company, Plaintiff v FDIC, FDIC as Receiver for IndyMac Bank
Case Number: 2:2009cv03852
Filed: May 29, 2009
Court: California Central District Court

Deutsche Bank National Trust Company, plaintiff, as Trustee for certain residential mortgage-backed securitization trusts v FDIC, as Receiver of IndyMac Bank, F.S.B.; FDIC, as Conservator and Receiver of IndyMac Federal Bank F.S.B
Case Number: 11-80152
Filed: July 12, 2011
Court: U.S. Court of Appeals, Ninth Circuit

Deutsche Bank National Trust Company, as Trustee for certain residential mortgage-backed securitization trusts v FDIC, as Receiver of IndyMac Bank, F.S.B.; FDIC, as Conservator and Receiver of IndyMac Federal Bank F.S.B
Case Number: 11-56339
Filed: August 10, 2011
Court: U.S. Court of Appeals, Ninth Circuit

Deutsche Bank National Trust Company, plaintiff v FDIC, in its capacity as Receiver of Washington Mutual Bank
Case Number:  12-5170
Filed:  May 25, 2012
Court:  U.S. Court of Appeals, D.C. Circuit

MBIA, Inc. jumped into the cluster and also filed suit against the FDIC.  MBIA, a Fortune 1000 business enterprise, (#655 in 2010) provides financial guarantee insurance and other forms of credit protection. It wanted $654 million from the FDIC for the losses it incurred by insuring the lousy mortgages Deutche Bank issued.  (Deutshe is referenced in the legal brief.)   One of these cases was dismissed on March 8 and the appeal decision came in just as I was writing.

03/12/2013 03:07:50 PM EST
Panel Affirms Dismissal Of MBIA’s IndyMac-Related Suit Against FDIC

WASHINGTON, D.C. – The District of Columbia Circuit U.S. Court of Appeals on March 8 affirmed the dismissal of MBIA Insurance Corp.’s suit alleging that the Federal Deposit Insurance Corp., as the receiver for the failed IndyMac Bank FSB, wrongly refused to reimburse it for losses on mortgage-backed securities (MBS) contracts it insured (MBIA Insurance Corp. v. Federal Deposit Insurance Corp., No. 11-5317, D.C. Cir.; 2013 U.S. App. LEXIS 4707).

This decision doesn’t bode well for Deutsche Bank’s efforts to find an escape from its responsibilities for what it did in 2007.  What a coincidence that the FDIC would be smeared at this point in the story!

Democracy begins with responsible citizens.  Inform yourself.  Beware of false friends.

The FDIC’s enforcement actions are publicly disclosed on its website.  The announcement of enforcement actions is released monthly.  You can browse the fdic.gov website by clicking on the “News and Events” tab on the home page and then clicking the link for “Press Releases.”  Or you can use this link to the list of recent Press Releases.  How does the accusation of secrecy regarding settlements square with the announcements that have been made?

View Press Release FDIC (2013)

In major policy shift, scores of FDIC settlements go unannounced

Since the mortgage meltdown, the FDIC has opted to settle cases while helping banks avoid bad press, rather than trumpeting punitive actions as a deterrent to others.

March 11, 2013|By E. Scott Reckard, Los Angeles Times

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 largest U.S. bank failures

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.

Defendants benefit by settling because they can avoid admitting guilt and limit the damages they might face in court. The FDIC benefits by collecting money without the hassle and expense of litigation. The no-press-release arrangements help close those deals.

Deutsche Bank, now the world’s largest, settled to resolve claims that subsidiary MortgageIT sold shaky loans to Pasadena-based IndyMac Bank, which imploded under the weight of risky mortgages and construction loans.

The IndyMac failure — considered one of the early events that helped usher in the 2008 financial meltdown — caused a scene reminiscent of the grim bank failures of the 1930s, with panicked depositors lining up outside branches trying to reclaim their money.

Overall, the FDIC collected $787 million in settlements by pressing civil claims related to bank failures from 2007 through 2012 — a fraction of its total losses.

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. He declined to discuss the legal strategy behind the Deutsche Bank deal and other no-press-release agreements. A Deutsche Bank spokeswoman declined to comment.

Critics fault the government for going easy on banks in the aftermath of the financial crisis. At a Feb. 14 hearing, Sen. Elizabeth Warren (D-Mass.), founder of the Consumer Financial Protection Bureau, criticized FDIC Chairman Martin J. Gruenberg along with other bank regulators for their reluctance to make examples of Wall Street firms by taking them to trial.

Seeking to recover deposit-insurance losses, the FDIC has dealt mainly with smaller institutions that failed, unlike the big banks that were bailed out.

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 FDIC should disclose as much as it can, said Lauren Saunders, managing attorney at the National Consumer Law Center in Washington. “Transparency is always better, and serves as a deterrent to future misconduct.”

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.

FDIC as Receiver after the 2008 Financial Crisis – The Quietly Settled Deutsche Bank Legal Court Cases
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Laws In Texas is a blog about the Financial Crisis and how the banks and government are colluding against the citizens and homeowners of the State of Texas and relying on a system of #FakeDocs and post-crisis legal precedents, specially created by the Court of Appeals for the Fifth Circuit to foreclose on homeowners around this great State. We are not lawyers. We do not offer legal advice. We are citizens of the State of Texas who have spent a decade in the court system in Texas and have been party to during this period to the good, the bad and the very ugly.

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