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Bankruptcy Judge Allows Involuntary Bankruptcy to Move Forward

September 3, 2014

Authors

Robert Klingler

Bankruptcy Judge Allows Involuntary Bankruptcy to Move Forward

September 3, 2014

by: Robert Klingler

On August 29, 2014, Judge John T. Laney, III, the Chief United States Bankruptcy Judge for the Middle District of Georgia, issued an order denying FMB Bancshares’ motion to dismiss the involuntary bankruptcy petition filed by its TruPS creditor, Trapeza CDO XII.  Among other conclusions, Judge Lacey found that the restrictions contained in FMB Bancshares’ written agreement with the Federal Reserve constituted a a restriction on the company’s ability to pay, rather than its legal duty to pay.  While detrimental to FMB Bancshares’ motion to dismiss, this conclusion should reinforce the ability of third parties to enter binding contractual arrangements with bank holding companies, which should be of great relief to those willing to lend to bank holding companies.

As reflected in the opinion and other court documents, FMB Bancshares issued $12 million in Trust Preferred Securities to Trapeza CDO XII in 2006.  Starting in March 30, 2009, FMB

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TruPS and Involuntary Bankruptcy

July 8, 2014

Authors

Jerry Blanchard

TruPS and Involuntary Bankruptcy

July 8, 2014

by: Jerry Blanchard

One of the most dramatic tools a lender can use in the collection of a loan is the involuntary bankruptcy case.  It is dramatic because of the implications for both the debtor and the lender who files the case. If a bankruptcy court determine that the petitioning creditor has not met the statutory requirements it may require the creditor to pay the debtor’s costs and attorneys fees in defending the petition and if the court finds that the petition was filed in bad faith it can award compensatory and punitive damages.  The consequences for the debtor are that if the creditor is successful, the debtor’s business and assets are now subject to disposition under a frameworks found in the Bankruptcy Code which may involve the appointment, at least initially,  of a bankruptcy trustee to administer the debtor’s estate.  Even if the debtor is successful in fighting off the petition it

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Sharing Directors Brings Added Experience to Your Board but Could Cause Problems

May 3, 2012

Authors

Jonathan Hightower

Sharing Directors Brings Added Experience to Your Board but Could Cause Problems

May 3, 2012

by: Jonathan Hightower

Many financial institutions, particularly community banks, have enhanced the experience level of their boards by adding a director who is a banker or serves on the board of another financial institution. In general, utilizing a director who has current experience with another financial institution is a great way to add valuable perspective to a variety of issues that the board may encounter. In addition, as private equity funds made substantial investments in financial institutions, they often bargained for guaranteed board seats. The individuals selected by private equity firms as board representatives often serve on a number of different bank boards. As market conditions have led to increased bank failures, however, a problem has resurfaced that may cause some financial institutions to take a closer look at nominating directors who also serve other financial institutions: cross-guarantee liability to the FDIC.

The concept of cross-guarantee liability was added

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FDIC Weighs in on Director and Officer Removal of Bank Documents

March 19, 2012

Authors

Bard Brockman, Jake Bielema and Jonathan Hightower

FDIC Weighs in on Director and Officer Removal of Bank Documents

March 19, 2012

by: Bard Brockman, Jake Bielema and Jonathan Hightower

Following the failure of over 400 financial institutions since the beginning of 2008, the FDIC has clarified its expectations with respect to collection and retention of bank documents by directors and officers of troubled or failing financial institutions for the purpose of explaining or defending their conduct. The FDIC’s Financial Institution Letter (FIL) released today sets forth the FDIC’s position that “[d]irectors and officers of troubled or failing financial institutions who remove originals or copies of financial institution records under such circumstances breach their fiduciary duty to the institution.” Presumably the FDIC would also object to a director or officer of a healthy bank copying and removing bank documents if the FDIC concludes that it is being done for improper purposes, although the FIL does not specifically address that issue.

Even though the guidance comes late in the game, we believe it is helpful for the FDIC to articulate

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The Next Wave of FDIC Consent Orders

March 13, 2012

Authors

Jonathan Hightower

The Next Wave of FDIC Consent Orders

March 13, 2012

by: Jonathan Hightower

Just as many bankers believed that the worst of the enforcement environment was behind them, a threat of “new” Consent Orders for some state non-member banks has arisen. These “new” orders are not reflective of banks for which the regulators have identified new problems but are instead based upon the FDIC’s apparent decision that orders that were “led” by state regulators are not adequate for the FDIC’s enforcement purposes. To illustrate this point, the new orders we have seen thus far have been substantively consistent with the existing state orders.

This movement by the FDIC comes at an unfortunate time given overall downward trend in the number of FDIC consent orders being issued as banks continue to identify and manage their problems. From a practical standpoint, the publication of a new FDIC order may result in perception that a bank’s condition is worsening when in fact

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Self-Exam: Improve the Health of the Bank and its Standing with Regulators

February 2, 2012

Authors

Jonathan Hightower

Self-Exam: Improve the Health of the Bank and its Standing with Regulators

February 2, 2012

by: Jonathan Hightower

Doctors recommend various self exams to catch disease early, so it can be treated before it’s too late. As it turns out, a self examination can be good for the health of a bank as well. My colleagues and I recommend that our banking clients and friends undertake a regular self examination in order to identify potential internal and external challenges that the bank may face. As discussed more thoroughly below, these self examinations can also be very helpful when the bank’s doctor (your friendly regulator) comes in for a check-up.

Enlist internal audit

To initiate the self examination, the audit committee of the bank’s board of directors should charge management with preparing a report that outlines the current and projected status of the bank’s key areas of risk. Ideally, the bank’s internal audit function will take the lead in performing the examination and preparing

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FDIC Criticizes Civil Money Penalty Insurance

December 5, 2011

Authors

Ken Achenbach

FDIC Criticizes Civil Money Penalty Insurance

December 5, 2011

by: Ken Achenbach

In recent exam cycles, bankers have generally been no strangers to heightened scrutiny by FDIC examiners on a variety of topics.  In the past several months, the insurance policies carried by banks have been added to the list of potential hot-button items.

Specifically, FDIC examiners have begun to scrutinize bank insurance policies to determine whether the policies provide coverage for civil money penalties (“CMPs”) that may be assessed against bank officers or directors. If any bank insurance policies are found on examination to contain an endorsement extending coverage for CMPs to officers or directors, the FDIC is citing such policies as being in violation of Part 359 of the FDIC’s Rules and Regulations.

Part 359, among other things, prohibits banks and affiliated holding companies from making certain “prohibited indemnification payments.” These prohibited payments include any payment or agreement to pay or reimburse bank

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Green Shoots Redux

October 13, 2011

Authors

Jerry Blanchard

Green Shoots Redux

October 13, 2011

by: Jerry Blanchard

Each year it seems that someone or other will comment on the “green shoots” that seemingly presage the end of the banking crisis. More often than not, the green shoots were simply the product of an overactive imagination.

There was recent news from the FDIC though that I think qualifies pretty strongly as green shoots material.  On September 14 the FDIC announced that it will be closing down its Midwest Temporary Satellite Office located in Schaumburg, IL toward the end of September 2012. The FDIC had previously indicated that the office would remain open until the end of the second quarter of 2013. The FDIC had announced earlier this year that its West Coast Satellite Office will close January 30, 2012.

The Southeast Temporary Satellite Office located in Jacksonville is theoretically scheduled to stay open until the end of 2013 due to the larger number of bank receiverships

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Bank Regulator Mixed Messages?

August 16, 2011

Authors

Robert Klingler

Bank Regulator Mixed Messages?

August 16, 2011

by: Robert Klingler

On August 16, 2011, the Financial Institutions and Consumer Credit subcommittee of the House Committee on Financial Services held a field hearing in Newnan, Georgia, with a stated topic of “Potential Mixed Messages: Is Guidance from Washington Being Implemented by Federal Bank Examiners?”

Representatives Shelley Moore Capito, Spencer Bachus, Lynn A. Westmoreland and David Scott each heard testimony from panels of federal banking regulators and Georgian bankers about the condition of banking in Georgia, including the effect that federal banking regulations, guidance, policies and actions have had on community banks.  Copies of the written testimony submitted, including that of the FDIC, OCC and Federal Reserve are now available on the Subcommittees website.

Although it is hard to draw any overall themes from the hearings (other than possibly that the issues involved aren’t easily addressed in this format), there were several good points made.

From the FDIC’s written

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How do the Bank Regulators View the Federal Home Loan Banks?

March 28, 2011

Authors

Bryan Cave

How do the Bank Regulators View the Federal Home Loan Banks?

March 28, 2011

by: Bryan Cave

Jerry Blanchard recently spoke to the national sales meeting of the Federal Home Loan Banks on the topic of How the Regulators View the FHLB’s.

The FHLB system has been a major source of liquidity to its over 8,000 members during the financial crisis and faces many challenges as the system deals with:

  • shrinking demand for loan advances;
  • losses incurred in mortgage backed securities that have led to a number of the FHLB’s having to enter into Consent Orders with  their primary regulator; and
  • greater Congressional scrutiny of all government sponsored entities.

Banking regulators deal with the consequences of FHLB policies and actions when financial institutions are taken into receivership. In some instances, the availability of FHLB advances may have led to some banks to incurring more risk than they would  have otherwise  incurred.

Jerry’s presentation addressed how the banking regulators view the role of

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