Banking Law

The head of a Big 3 financial institutions consulting practice group was relaxing over cocktails with a friend of mine and me almost ten years ago and made one of the classically cynical remarks that drives clients berserk. We were talking about the then-hot topic of "personal information privacy." Lots of lawyers, accountants, large technology consulting firms, and various other forms of snakes and snake-oil salesmen were trying to find a way to capitalize on the subject. He told my friend and me that the secret to securing any consulting engagement was to convince the prospective client that "there's a s**t storm coming and you have the best umbrella." I assume he and his firm made a bundle from selling umbrellas.

Unlike the privacy hype, which, while it had a basis in fact, always seemed to me to be like Mark Twain's observation about the weather: everyone talks about it but no one does anything about it, there's another "dust storm" on the horizon and it does not appear to be hyped. Rather, it appears to be making certain people hyperventilate, mostly directors and senior officers of banks that have failed or are at risk of failing in the next year or two. As we've been talking about the past couple of months (most recently here), the FDIC plans to come looking for every pocket it can stick its hands into to recover money for the rapidly-depleting insurance fund. Prudent management and directors of banks need to get their ducks in a row before the first shots are fired.

Joe Lynyak and John Zink of Venable LLP recently put out a Financial Services Alert on the potential liability of officers and directors of failed FDIC-insured financial institutions. As the authors suggest, the alert may be a "useful starting point" for management and directors to understand their exposure and what to do to minimize it (other than simply find a safer line of work, such as being a bomb disposal expert in Afghanistan). It can be read as a prelude to another alert co-authored by Mr. Lynyak on responding to enforcement actions (which I previously mentioned here).

When the risk of "regulatory rain" is high, it's never too early to arm yourself with the best umbrella you can find: knowledge. Get it anywhere it's offered, especially when it's offered for free.