SOURCE: American Association of Bank Directors

American Association of Bank Directors

December 28, 2010 08:45 ET

American Association of Bank Directors to FDIC: Don't Interfere With Bank Directors' Rights to Defend Themselves Against FDIC Suits

WASHINGTON, DC--(Marketwire - December 28, 2010) - The American Association of Bank Directors (AABD) has strongly urged Sheila C. Bair, Chairman of the Federal Deposit Insurance Corporation (FDIC), to clarify immediately that the FDIC supports the right of bank directors to copies of bank records they need in order to defend themselves against suits by the FDIC and others.

The FDIC recently expressed a new policy that bank directors have no right to possess copies of bank documents relevant to their defense of a potential suit by the FDIC as receiver. The FDIC has aggressively sought to enforce this previously undisclosed policy by filing a lawsuit against attorneys representing bank directors in the defense of proceedings by the FDIC aimed at recovering losses from their clients.

"This policy is shortsighted and counterproductive," said David Baris, Executive Director of AABD. "It will deter qualified persons from accepting positions as bank directors and will motivate currently serving directors to resign."

In a letter dated December 22, 2010, Baris requested Chairman Bair to (1) advise directors of failed banks who are the subject of a demand letter from the FDIC that they are entitled to obtain copies of, or review, bank files from the FDIC under appropriate confidentiality restrictions; (2) publicly state that bank directors may at any time obtain, possess and retain copies of any bank records and may maintain such records following the closing of their bank, subject to appropriate confidentiality restrictions; and (3) publicly state that bank directors are entitled to be represented by counsel and that their banks are subject to generally corporate statutes as to circumstances and procedures under which the bank might pay for their legal defense.

During the savings and loan crisis of 20 years ago, both the Resolution Trust Corporation (RTC) and FDIC routinely barred bank directors from having access to copies of bank records that would allow them to refresh their memories of actions taken as directors, sometimes ten years or more prior the bank's failure. As Baris explained, "The RTC and FDIC often would depose directors before a lawsuit was filed without providing the directors with an opportunity to review the record. We can't let that travesty happen again."

The FDIC has also taken the position that banks may not pay for the defense of their bank directors against potential lawsuits by FDIC as receiver. "This position singles out bank directors from directors of all other corporations, who, under state corporate statutes and the corporations' articles of incorporation and bylaws, may be entitled to have their legal fees paid for by their corporations," Baris said. "Bank directors don't like the FDIC's stance, and the industry runs the risk of losing some good bank directors."

Founded in 1989, the American Association of Bank Directors is the only trade group in the U.S. solely devoted to bank directors and their information, education, and advocacy needs. Online: http://www.aabd.org.

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