Summary of Bank Civil Money Penalty Issue As Of Now

I just sent the following to a bank client. We had completed a coverage review and thought that the issue of Civil Money Penalties should be in a separate email – making it easier to forward on to his board.

John Smith,

In our conversation yesterday I recommended that the bank consider removing civil money penalties insurance from the directors’ and officers’ insurance policy. This letter gives you something specific to ponder. Feel free to share with your directors and officers for discussion.

First, here is a link to a paper I prepared on D&O insurance for bank directors. It gives an overview of the broad topic of D&O insurance –

Civil Money Penalties insurance (CMP) is an extension of the standard directors’ and officers’ insurance policy to provide coverage for regulatory fines and penalties.

For several years now there has been some controversy over CMP coverage on bank D&O insurance. In October the FDIC put out a letter removing any doubt about their disapproval of banks having this coverage.

Here is a link to the FDIC October advisory –

Here is a link to some of my past writings on the topic –

Your current bank D&O insurance has coverage for CMP – $100k per director or officer / $1m policy aggregate.

The removal of CMP coverage from your bank’s policy (as I am recommending) will not leave your directors uncovered for the vast majority of claims brought by regulators. You will still have insurance for defense costs of actions brought by regulators and any legal judgement against the directors. What you will not have is insurance for fines and penalties assessed by regulators.

Of course you can keep the CMP coverage in place on your bank’s insurance. Doing so will, I think, set you up for some form of FDIC-wrath. Maybe a slap on the wrist. Maybe a fine for having CMP coverage. The FDIC letter leaves no doubt as the the regulators’ position. Perhaps you had some wiggle-room before the October letter. Not any more.

Your insurer did not charge you for the CMP coverage you have now. Taking the coverage off will not result in a premium reduction. Your insurer will leave the coverage on – or they will take it off; they don’t care – they aren’t the ones who would be in trouble with the FDIC.

I am often asked to make presentations to bank boards on this topic. I’m glad to talk to your board by conference call. Fifteen minutes may help your directors with the issues.

Always glad to talk. Let me know what else you need on this issue.