FDIC Settling Bank Fraud Cases in Secret

The LA Times has a story that really highlights both the necessity of the Freedom of Information Act and how good investigative journalists can use it to bring transparency to an important subject. They report that the FDIC has been settling major bank fraud cases in secret rather than making an example out of those who caused the 2008 financial industry collapse.

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.

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.

The Deutsche Bank settlement involved a subsidiary of theirs selling bad loans to IndyMac, which collapsed in 2008 and helped trigger the worst recession since the Great Depression. But that settlement was withheld from the public so as not to embarrass the poor oligarchs in charge. And here we have Eric Holder claiming that the banks are too big to be criminally prosecuted. Elizabeth Warren is right, there needs to be prosecutions. If the rule of law is going to mean anything, we need to start throwing CEOs in prison. Without that, they’re never going to stop.

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  • Well, if we had good investigative journalism in this country, someone would have “specific inquiries” about every bank involved in the housing bubble scan a long time ago.

  • Phillip IV

    except in response to a specific inquiry

    And I bet it needs to be very specific, like “Have you, or have you not, levied a fine of precisely $ 54,123,538.65 against Deutsche Bank in a settlement dated March 5th, 2010, with said settlement having 138 pages and the FDIC’s copy being kept in an off-white binder with a little tear in the top right corner?”

  • matty1

    And here we have Eric Holder claiming that the banks are too big to be criminally prosecuted.

    This needs a little bit of unpacking, the executives who break the law should absolutely be prosecuted. The issue comes when you impose a penalty on the business and the executives turn round and dump the cost on customers or on small shareholders whose only crime was to listen when a pension advisor said “You should put the funds in…”. There should be a way to separate things out so the people who pay for wrongdoing are the ones who did wrong.

  • “If the rule of law is going to mean anything, we need to start throwing CEOs in prison.”

    Haven’t they been punished enough? Oh, woe! Won’t someone think of the CEOs!