Banking Law

FDIC's "Repudiation" Powers: Deja Vu All Over Again

As the FDIC continues to sing its favorite tune, "Another One Bites the Dust," listeners who do business with FDIC-insured banks and thrifts should become familiar with the repudiation powers of the FDIC in its capacity as the receiver of a failed financial institution. Dallas-based Haynes and Boone recently put out a client alert on the topic that is worth reading. As a landlord or service provider to a bank, you just hate to wake up on a Saturday morning and find that the lease or contract you thought was solid gold when you left work on Friday might be no more than dust blowing in the wind by the time the receiver gets through with it.

While you're at it, you might also find a K&L Gates memo on the same subject from a couple of years ago to be valuable. That memo also discusses 12 USC 1821(e) and the "D'Oench, Duhme Doctrine" that is codified in that provision of federal law. I recall that after the last time we through massive bank failures, many legal counsel for borrowers became incensed when they learned that all those side-letter and hand-shake deals made by the failed bank's former management that they thought they could assert against the FDIC as receiver ended up as no more than spitballs being tossed at an M1 Abrams tank. 

When folks think of risks in the banking business, they likely think first of risks that the bank takes in dealing with third parties, like counterparties in a SWAP transaction or borrowers in a loan transaction. If the FDIC keeps mowing down community banks like wheat before the thresher, being a third party on the other side of any contractual relationship with a bank will be like being a rookie in a No Limit Texas Hold'em Poker tournament sitting across the table from Phil Ivey. Sooner or later, no matter how observant or skilled you might be, you're going down. It's best to be prepared.

Full post as published by Bank Lawyers Blog on March 07, 2010 (boomark / email).