FDIC goes after holding firms for cash

The FDIC emblem.

TEXT OF STORY

Tess Vigeland: We talked earlier about how big banks may, just may be opening the tap a little wider on the flow of loans to consumers and businesses. But that doesn't mean the banking system is healthy yet. So far this year 64 banks have failed, meaning the Federal Deposit Insurance Corporation has to come in and clean up.

The FDIC is looking for new ways to recoup that money spent on those efforts, and the agency thinks it may have found one new solution in an Ohio courtroom. Dan Bobkoff of WCPN in Cleveland explains.


Dan Bobkoff: When AmTrust Bank in Cleveland failed in December, the FDIC's insurance fund took a $2 billion hit.

Bill Mahnic of Case Western Reserve University says the FDIC is getting more aggressive because of its own money problems.

BILL MAHNIC: What it's looking for is every time it has to go in and rescue a bank, it's looking to recover money at any possible opportunity.

If it prevails in a Cleveland bankruptcy court, the FDIC might have another way to get more money out of the parent companies of failed banks. It's going after AmTrust's former parent, which now calls itself AmFin, arguing it violated a 2008 order to keep the bank solvent. But an order is different from the formal commitments other banks have made to the government. The FDIC wants the court to treat them the same.

Attorney Joe Hutchinson represents the FDIC.

JOE HUTCHINSON: The basic position of the FDIC is that a commitment was made by the holding company, the parent company of AmTrust bank.

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But AmFin says it never committed to anything. It had to deal with problems in its other businesses.

What's at stake? In this case, at least $518 million. That's how much it would have taken to keep AmTrust Bank alive. The FDIC wants AmFin to pay up.

That could leave other creditors with nothing.

Chris Meyer is a lawyer for AmFin. He says it's unlikely its assets, which include a lot of Florida real estate, are even worth enough to cover what the FDIC wants.

CHRIS MEYER: If the FDIC was the first and foremost creditor for an amount in excess of $500 million, it may make sense for us to simply hand them the keys, so to speak, and liquidate the business.

The FDIC's court filings make no secret that it sees this case as about far more than one failed bank in Ohio. It says the ruling will have a big effect on its authority to hold bank holding companies accountable. And with roughly 700 institutions on its problem list, banking expert Bill Mahnic says the agency is trying to arm itself for more fights.

MAHNIC: The FDIC may be trying to set a new precedent here in anticipation of the next 100, 150 bank failures that are coming its way.

In Cleveland, I'm Dan Bobkoff for Marketplace.

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