The Federal Deposit Insurance Corp., known to most consumers as the insurer of their bank accounts, has settled in secret with bankers accused of wrongdoing or rule-breaking, agreeing not to issue press releases about the deals.
The Los Angeles Times reported today on the secret settlements after sifting through 1,600 pages of documents obtained through the Freedom of Information Act.
The FDIC not only insures bank deposits but also shuts down failing banks, as it has done at near record paces since the financial crisis.
The “no press release” clauses help seal deals that benefit the banks by having to avoid admitting guilt and limiting the damages they might face in court, the Times said.
The agreements settled various wrongdoing, fraud and negligence, including reckless lending to homeowners and builders; falsified documents; inflated appraisals; and lender refusals to buy back bad loans, the LAT said.
The FDIC benefits from the deals by collecting money without the hassle, delays and expense of litigation.
In one particularly striking example, Deutsche Bank agreed to pay $54 million to quietly settle charges that its New York mortgage-banking subsidiary, MortgageIT, sold bad loans to another mortgage bank, Independent National Mortgage Corporation, a/k/a “IndyMac.” IndyMac collapsed from holding too many bad mortgage loans in July 2008, the peak period for the financial crisis.
In exchange for the settlement, the FDIC agreed not to announce the deal unless it was asked about it, the L.A. Times writes. That was just one of “scores” of such settlements the LAT discovered.
The FDIC would not comment to the LAT about the no-press-release clauses, but a spokesman did say that it announces settlements “when damage payments are large and media interest intense.” Many of the settlements turned up by the FOIA request were fairly small.
However, the small-size contention by the FDIC does not shed light on the non-announcement of the Deutsche Bank settlement, which was relatively large and would have attracted media interest.
Since 2007, 471 U.S. banks have failed, nearly depleting the FDIC 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, LAT wrote.
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.