Gov’t. Says FDIC Isn’t Backed By U.S. Congress


Editor’s Advisor                  Contact:   Pamela Whitney –  202.747.4440

July 7, 2010

SIGNS on Bank Counters

Insuring Deposits Up to $250,000

Really Backed By US Congress?

WHO:            Tom Buchanan, partner Winston & Strawn LLP (Wash, DC)

Frank Slattery, Jr. and shareholders of Meritor Savings Bank (PSFS)

WHAT:            En Banc oral arguments at US Court of Appeals, Federal Circuit, July 8th, Room 201 at 11:00 a.m. — Frank Slattery, et al v United States

WHY:            To decide government’s request that the FDIC be treated as a Non-Appropriated Fund Instrumentality (NAFI) that is similar to a military commissary or backed by the US Congress as stated on all FDIC signs on bank countertops at every teller’s window across America.  If the former, all FDIC regulated banks and their depositors, not U.S. Taxpayers, may be on the hook for hundreds of millions of dollars in the 18 year old case.

THE CASE:

In 1992, the FDIC asked Pennsylvania’s Department of Banking to shut down Meritor, formerly PSFS, and the oldest and largest savings association in the country.  Both the trial court and a panel for the court of appeals for the Federal Circuit have found that FDIC’s actions, including the events that triggered seizure of this storied franchise, constituted a breach of contract for which the government must now pay at least $276 million.

Tom Buchanan represents Frank P. Slattery Jr.  Mr. Slattery was a successful principal shareholder of Meritor and its predecessor, PSFS.   He brought this case as a derivative action on behalf of the seized bank.

After also losing before a 3-judge panel of the Federal Circuit, the government petitioned for a rehearing en banc.   The en banc court is not re-considering issues of liability or damages.  It is instead reviewing whether the trial court properly had jurisdiction to hear the breach of contract dispute in the first place.

The government is now arguing that the FDIC is a NAFI, that is, an agency created by the executive branch that receives no funding, and will not receive any funding, from the US Treasury, i.e., Congress.  The FDIC receives its funding by charging banks fees to member banks.  If the en banc court agrees that the FDIC is a NAFI, and finds that appropriated funds may not be used to pay judgments against NAFI’s, then any judgment in the Meritor Savings case will have to be borne not by Treasury dollars, but by the banks regulated by the FDIC.  In other words, the FDIC could be found to be in breach, but it would be entitled to recover the judgment by bank

Moreover, if the government were to succeed on its jurisdictional challenge, the plaintiffs would have to start the case all over again in another court and sue the FDIC rather than Uncle Sam.

WHAT MAKES THIS CASE RELEVANT TODAY — PARTICULARLY TO BANK DEPOSITORS?

In order to find the FDIC a NAFI, the government is arguing that Congress has no obligation to honor its promises to back deposits with the full faith and credit of the United States.

“We are confident the prior court rulings will be affirmed based on the long-standing precedents we’ve cited in our briefs,” Winston’s Buchanan said.   “Members of Congress over the years have repeatedly assured their constituents and the American public that the full faith and credit of the U.S. government stands behind all FDIC deposits.  “The American public will be shocked to learn that the US Congress not only does not back their FDIC insured deposits, but also that those signs on bank counters stating that they do . . . are meaningless,” concluded Buchanan.

Winston & Strawn LLP is an international law firm with more than 900 attorneys among 14 offices in Beijing, Charlotte, Chicago, Geneva, Hong Kong, London, Los Angeles, Moscow, New York, Newark, Paris, San Francisco, Shanghai, and Washington, D.C.

Attach:  1.  Article   2. Timeline.  3. 01/22/10 US Court of Appeals 207-5063,-5064,-5089

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About Legal News To Use

A media and public relations arm of Whitney Corporate Relations with over 25 years experience working with Fortune 50 corporations, lobbyists and the legal community on internal and external communications, governmental and crisis relations.
This entry was posted in Bank Closures, FDIC, FDIC bank regulations, LEGAL NEWS TO USE, U.S. CONGRESS, US CONGRESS, Winston & Strawn LLP and tagged , , , , , . Bookmark the permalink.

4 Responses to Gov’t. Says FDIC Isn’t Backed By U.S. Congress

  1. Choirboy says:

    Gee, what happened between yesterday’s version and today’s? Someone seems to have turned a great story into wishy-washy mumbo-jumbo. Sounds like the CYA department must have stepped in . . .

  2. doriso3 says:

    consistently the federalm government has asured the fdic that funding up to 500 million dollars and more is available to the FDIC AGENCY IF NEED BE. THE fdic HAS INSURED TRILLIONS OF DOLLARS OF DEPOSITS . IN ADDITION IT HAS GUARANTEED sums of money in all the bank closings that have been sold to other banks or individual groups of buyers of banks beyond the amount of money available through fees on bank deposits. The FDIC is relying on a Resolution Trust Authority to bail them out of the thousands on banks that are underwater.

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