Bank Director Gross Negligence vs Ordinary Negligence and FDIC

When a bank fails, the FDIC wants to get its money back.  There is a common pattern of the FDIC going after the directors of failed banks.  Currently the FDIC has to show “Gross Negligence” before doing this. They want to lower the bar to “Ordinary Negligence.”

Bank associations and bankers are mostly against this change.  The American Bankers Association has filed a friend of the court brief on the topic in regards to a North Carolina legal battle.  It is interesting, I think.

Read it here.

I can also predict that bank insurers will be against this change. A higher standard of care means easier lawsuits, means more lawsuits, means more payouts, means greater risk…

Our banks need sharp, bright, successful people on boards. Compensation at many banks is pretty low for directorships – when you consider the time and effort that has to go into being a good director. We are also demanding more from our directors than ever before. Conscientious directors are concerned about their personal liability. The emphasis by the FDIC on the removal of insurance for civil money penalties in 2013, plus this push, has more than a few bankers worried about keeping and attracting good people.