Revisiting the FDIC’s “Superpowers”: Contract Repudiation and D’Oench Duhme

05/28/2010

The current economic climate has led to a dramatic increase in bank failures over the past several years. In 2009 alone, 140 banks failed, compared to 26 bank failures in 2008 and only three bank failures in 2007. In the first four months of 2010, 64 banks have already closed. This acute trend has heightened the awareness and interest in the role of the Federal Deposit Insurance Corporation (“FDIC”) as receiver of failed banks.

The determination that a bank is insolvent is typically made by its chartering authority (i.e. the state bank supervisor for state chartered banks, the Office of the Comptroller of the Currency or the Office of Thrift Supervision for federally chartered banks or thrifts, respectively).

Once the bank is considered insolvent, the regulator will then appoint the FDIC as receiver. The Federal Deposit Insurance Act (as amended, the “Act”) grants to the FDIC as receiver substantial powers and flexibility to facilitate the bank’s orderly liquidation, dissolution, asset sale and/or merger.

The receiver, by operation of law, succeeds to all rights, titles, powers and privileges of the failed bank, and of any stockholder, member, accountholder, depositor, officer, or director of such bank with respect to the bank and its assets.

As seen in The Banking Law Journal, May 2010. Reprinted with permission. The full article can be read by clicking on the PDF linked below.

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