fdic's expanded role in bank holding company...
TRANSCRIPT
FDIC's Expanded Role in Bank
Holding Company Insolvencies Navigating the Complexities of Banking Regulators' Participation in the Bankruptcy Process
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
THURSDAY, JULY 26, 2012
Presenting a live 90-minute webinar with interactive Q&A
Todd C. Meyers, Partner, Kilpatrick Townsend & Stockton, Atlanta
Ivan L. Kallick, Partner, Manatt, Phelps & Phillips, Los Angeles
James D. Higgason, Partner, Diamond McCarthy, Houston
Sound Quality
If you are listening via your computer speakers, please note that the quality of
your sound will vary depending on the speed and quality of your internet
connection.
If the sound quality is not satisfactory and you are listening via your computer
speakers, you may listen via the phone: dial 1-888-450-9970 and enter your
PIN -when prompted. Otherwise, please send us a chat or e-mail
[email protected] immediately so we can address the problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
Viewing Quality
To maximize your screen, press the F11 key on your keyboard. To exit full screen,
press the F11 key again.
For CLE purposes, please let us know how many people are listening at your
location by completing each of the following steps:
• In the chat box, type (1) your company name and (2) the number of
attendees at your location
• Click the SEND button beside the box
FOR LIVE EVENT ONLY
If you have not printed the conference materials for this program, please
complete the following steps:
• Click on the + sign next to “Conference Materials” in the middle of the left-
hand column on your screen.
• Click on the tab labeled “Handouts” that appears, and there you will see a
PDF of the slides for today's program.
• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.
Topic Agenda
I. Overview
A. Chapter 7 v. Chapter 11
B. Key Questions to Address in BHC Bankruptcies
C. FDIC’s Role in the Case
D. The Nature Of BHC Debt
II. Key Issues Presented in BHC Bankruptcies
A. Who Owns the Tax Refund
B. Directors' and Officers' Litigation: BHCs v. FDIC
C. Capital Maintenance Claims
D. Fraudulent Transfer and Preference Claims
III. Title II of Dodd-Frank
FDIC’S EXPANDED ROLE IN BANK HOLDING COMPANY INSOLVENCIES Navigating the Complexities of Banking Regulators’ Participation in the Bankruptcy Process
Ivan L. Kallick, Presenter
310.312.4152
Thursday, July 26, 2012, 1 pm EST, Noon CST, 11 am MST, 10 am PST
Sponsored by the Legal Webinar Group of Strafford Publications
7
Manatt, Phelps & Phillips, LLP
The View From Above......
Chapter 7
FDIC AIR
BANK HOLDING COMPANY
Chapter 11
OPERATING BANK
BANK HOLDING COMPANY
OPERATING BANK
United States Bankruptcy
Court
8
Manatt, Phelps & Phillips, LLP
I. Understanding the issues and the questions to ask
In the context of a bank holding company bankruptcy having been filed or about to be
filed, it is important to examine and understand these common issues and questions:
Does the BHC have illiquid assets?
Does the BHC have liquid assets?
Does the BHC have an operating Bank subsidiary?
Did the BHC have an operating bank subsidiary?
Does the BHC have a non-operating Bank subsidiary?
Did the BHC have an operating non-bank subsidiary?
Does the BHC have a tax sharing agreement with its subsidiary?
Did the BHC abide by the terms of the tax sharing agreement?
9
Manatt, Phelps & Phillips, LLP
I. Common Issues to Be Examined and Understood - continued
Does the BHC have a right to such an IRS refund?
Is there a claim to be made and realized under a D&O policy?
Is there a claim to be made and realized under any other insurance policy?
Who holds the BHC debt?
Did the BHC down-stream or side-stream funds and when did they do it?
Did the BHC and the Bank subsidiary have common directors and/or officers?
Were there any extraordinary payments or disbursements to/benefit of insiders?
Is anyone interested in recapitalizing the subsidiary Bank?
Is anyone interested in the tax refund?
Who is the Bankruptcy Judge?
In what Circuit is the case pending?
Other than the FDIC and the TRUPS, are there other active constituent participants?
10
Manatt, Phelps & Phillips, LLP
II. FDIC’s Role in a Chapter 7 case
What if . . . . .
There is no cash...
There is no operating subsidiary...
There is no tax refund...
There is no D&O claim...
There are no Directors and/or Officers to operate...
There are no other insurance claims.
Then . . . . .
File Chapter 7.
Turn over the keys.
No role for directors and/or officers.
The Chapter 7 Trustee earns his/her $65.00.
FDIC is a bystander.
11
Manatt, Phelps & Phillips, LLP
III. FDIC’S Role in a Chapter 11/Section 363 sale
BHC has presently operating bank subsidiary, but its troubled.
BHC has reasonably marketed and there is a buyer/someone interested in re-
capitalizing the troubled bank.
Troubled bank may or may not be its only operating subsidiary.
FDIC is in the bank or has reserved a floor at the local hotel or motel.
The major debt holders at the BHC level are the Trust Preferreds – TRUPs.
Recapitalization makes sense, and FDIC may think so, too.
Recap made impossible by TRUPs holders – their ownership is divergent and
uncertain.
Chapter 11 - § 363 sale.
Court order is your title policy.
AmericanWest Bancorp, USBC, Eastern District of Washington, Case No.10-06097-
PCW11.
What happens after the sale is approved or not approved.
12
Manatt, Phelps & Phillips, LLP
IV. FDIC’s Role in a Chapter 11 – the liquidating plan
BHC’s only asset was an operating bank subsidiary.
BHC has enough cash to file Chapter 11.
BHC and operating Subsidiary had a tax sharing agreement.
Chapter 11 formalities.
Chapter 11 transparency.
Chapter 11 expenses.
Chapter 11 Disclosure Statement and Plan.
Liquidating plan for the benefit of:
– TRUPS
– FDIC
13
Manatt, Phelps & Phillips, LLP
The Tax Refund:
– BHC’s and operating bank subsidiary enter into a Tax Sharing Agreement.
– Usually a matter of state corporate law.
– What if both file a consolidated return.
– What is historical scenario – downstream the money.
– 26 USC § 1501 – BHC and bank are “affiliated companies”.
– Oftentimes, TSA says who files and who actually pays.
– Chapter 11 filed – who files return for refund
» Option 1 – Debtor
» Option 2 – FDIC
» Option 3 – Both
– Two Schools – Two Positions
» BHC/Bank are in a debtor/creditor relationship
» IndyMac, 12-cv-02967-RGK (USDC CD CA, 5/30/2012)
» NetBank, 3:11-cv-11-5-32 (USDC MD Fla, 6/25/2012)
» BankUnited, 462 BR 885 (SD Fla 2011)
» Coupon Clearing, 113 F 3d. 1091 (9th Cir. 1997)
» M Corp, 170 BR 899 (SD Tex 1994)
» BHC/Bank are in a trust relationship
» Bob Richards, 473 F 2d 262 (9th Cir. 1973)
» Lubin v. FDIC, 1:10-cv-00874-RWS (USDC ND GA, 2011)
IV. FDIC’s Role in a Chapter 11 – the liquidating plan
14
Manatt, Phelps & Phillips, LLP
IV. FDIC’s Role in a Chapter 11 – the liquidating plan
Examples – What issues have been briefed and decided and current status
– IndyMac, USBC Central District of CA, 2:08-bk-21752-BB
– Imperial Capital, USBC Southern District of CA, 09-19431-LA!!
–FirstFed, USBC Central District of CA, 2:10-bk-12927-ER
–Corus, USBC Northern District of Illinois, 10-26881 (PSH)
–NetBank, USBC Middle District of Florida, 3:07-bk-04295-JAF
–First Regional, USBC Central District of CA, 2:12-bk-31372-ER
–Vineyard Bancorp, USBC Central District of CA, 2:10-bk-21661-RN
–Harrington West, USBC Central District of CA, 9:10-bk-14677-RR
Directors’ and Officers’ Litigation: Bank
Holding Companies v. FDIC
FDIC’s Expanded Role in
Bank Holding Company
Insolvencies
Presented by
Todd C. Meyers of Kilpatrick Townsend & Stockton LLP
Partner and Chair of the Bankruptcy and Financial Restructuring Team
404.815.6482
Introduction
• Causes of action against former officers and directors of a bankrupt
bank holding company are one of the most valuable assets of a debtor’s
estate.
• However, disputes often arise with the FDIC over ownership of such
causes of action because the bankruptcy trustee and FDIC oftentimes
are suing the same persons, many of whom were officers and directors
of both the holding company and the failed financial institution.
• The competition is intensified when insurance coverage and other
assets can satisfy only a fraction of the likely valid claims.
16
FIRREA
• The dispute over ownership of causes of action arises in the framework
of the Financial Institutions Reform, Recovery and Enforcement Act of
1989 (“FIRREA”).
• FIRREA gives the FDIC the exclusive right to assert all derivative
claims on behalf of a bank in receivership. 12 U.S.C. §1821(d)(2)(A)(i).
• Nevertheless, a holding company may bring a cause of action against
its own officers and directors for breach of their fiduciary duties owed to
the bank holding company, which is a direct claim.
17
Direct Claim Versus Derivative Claim
• So, the key question is whether a particular cause of action is a
derivative claim or a direct claim. How do you distinguish a derivative
claim from a direct claim? This is a matter of state law, though the
general concept is the same from state-to-state.
• A derivative action is defined by Black’s Law Dictionary as follows:
A suit by a beneficiary of a fiduciary to enforce a right belonging to the fiduciary;
esp., a suit asserted by a shareholder on the corporation’s behalf against a third
party (usu. a corporate officer) because of the corporation’s failure to take some
action against the third party.
Black’s Law Dictionary 455 (7th ed. 1999).
18
GENERAL RUBBER
• The seminal case on the issue of whether a cause of action is direct or
derivative is General Rubber Company v. Benedict, 215 N.Y. 18, 109 N.E. 96
(N.Y. 1915), a decision authored by then Judge (and later Justice) Cardozo.
• In General Rubber, a holding company sued one of its directors for diminution in
the value of the stock in its subsidiary resulting from the diversion by the
subsidiary’s manager of $185,000. The complaint alleged that the holding
company’s director knew of this impropriety, acquiesced in it, and failed to report
it to the holding company.
• Rejecting the argument that the only cause of action belonged to the subsidiary,
the court held that because the defendant was a director of the holding
company, he owed the holding company a duty of good faith and vigilance with
respect to preservation of its property. Id. at 21. Breach of that duty entitled the
holding company to sue the defendant directly for the diminution in value of its
stock in the subsidiary resulting from waste of the assets of the subsidiary. Id.
19
LUBIN
• The decision of the Eleventh Circuit Court of Appeals in Lubin v. Skow,
382 F.App’x 866 (11th Cir. 2010) is instructive on the issue of derivative
versus direct claims in the context of a bank holding company debtor
and the FDIC, as receiver for the holding company’s failed bank.
• In Lubin, the trustee for a debtor bank holding company sued officers of
the holding company and officers of the holding company’s bank
subsidiary for breach of fiduciary duties allegedly resulting in the failure
of the bank.
• In his complaint, the trustee did not segregate the claims against the
bank’s officers from the claims against the holding company’s officers.
20
LUBIN
• The Eleventh Circuit determined that the claims pled against the bank
officers were claims that they had breached their fiduciary duty to the
bank by impairing the bank’s working capital and wasting its assets so
as to cause economic loss to the holding company and resulting in its
ultimate bankruptcy. Id. at 870-71.
• As a result, the Eleventh Circuit held that the trustee’s effort as
representative of the shareholder holding company to sue bank officers
for breach of fiduciary duty to the bank constituted the attempted
pursuit of a classic derivative claim which is barred by FIRREA. Id. at
871 (“The Trustee therefore lacks standing to bring a derivative suit
against the Bank’s officers”).
21
LUBIN
• The court in Lubin emphasized that a different analysis was required for the
trustee’s claims against the holding company’s officers for breach of their
fiduciary duties to the holding company: “Under FIRREA, the FDIC succeeds to
the rights of the Bank only. Therefore, where the Trustee is suing to vindicate
the rights of the Holding Company against its own officers, FIRREA is not
invoked.” Id. at 872.
• The court in Lubin recognized the basic principle that, when a parent corporation
(or the representative of its bankruptcy estate) sues its own officers for breach of
fiduciary duty to the parent corporation, the claim is not a derivative claim,
regardless of whether the claim implicates the corporation’s relationship with a
subsidiary.
• If such a claim is stated, it constitutes a direct claim that belongs to the holding
company. See also Case Fin., Inc. v. Alden, No. 1184-VCP, 2009 WL 2581873,
at *7 (Del. Ch. Aug. 21, 2009) (holding that a holding company’s breach of
fiduciary duty claims against its former CEO, who was also CEO of its
subsidiary, were direct claims, even though the alleged misconduct, including
misappropriation of corporate opportunities, occurred at the subsidiary level).
22
LUBIN
• Nevertheless, because the trustee did not plead sufficient facts to state
a claim against the officers for breach of their fiduciary duties owed to
the holding company, the Eleventh Circuit upheld the district court’s
dismissal of the claims against the officers of the holding company.
• Thus, the implication from Lubin is that if the trustee sufficiently pled
that officers of the holding company breached their duties to the holding
company with respect to oversight of the bank, then the claims against
them would have been determined to constitute direct claims, even
though they implicated the bank.
23
BANKUNITED
• Lubin involved overlapping officers and directors of the holding
company and its bank subsidiary. BankUnited, in which our firm is
involved, also dealt with overlapping officers in the context of D&O
litigation. There, the bankruptcy court took somewhat of a different
approach.
• The bankruptcy court entered an order on competing summary
judgment motions that was published at Official Comm. of Unsecured
Creditors v. Fed. Deposit Ins. Corp. (In re BankUnited Fin. Corp.), 442
B.R. 49 (Bankr. S.D. Fla 2010) (“BankUnited I”).
• BankUnited I was later reversed in part and affirmed in part by the
district court in Official Comm. of Unsecured Creditors v. Fed. Deposit
Ins. Corp., No. 11-20305-CIV (S.D. Fla. Sept. 28, 2011) (“BankUnited
II”).
24
BANKUNITED
• In BankUnited I, the bankruptcy court recognized that a claim by a bank holding company
against its own officers or directors could be a direct claim even if it related to the failure of
its subsidiary bank. However, the bankruptcy court decided that when the officers or
directors of the holding company were also officers or directors of the bank at the time of the
alleged breaches of fiduciary duty to the holding company, a special test was needed to
determine whether a claim was direct or derivative.
• Under the test employed by the bankruptcy court, when corporate fiduciaries overlap, even if
a complaint states a viable claim of breach of fiduciary duty owed to the holding company,
the claim is derivative if the alleged injury occurred at the bank level as well as at the holding
company level. Id. at 58-60.
• Utilizing this test, the bankruptcy court in BankUnited I concluded that Count I (seeking
recovery primarily for diminution in value of the holding company’s interest in the bank) and
Count III (alleging that the holding company CEO failed to provide sufficient information to
the board regarding a capital contribution from the holding company to the bank) constituted
derivative claims that belonged to the FDIC (on behalf of the bank) and could not be
pursued by the committee on behalf of the holding company debtor. Bank United I, 442 B.R.
at 59-60.
25
BANKUNITED
• The bankruptcy court also concluded that Count II (alleging that holding
company officers failed to provide adequate information to the board
about the holding company’s financial condition, resulting in loss to the
holding company) constituted a direct claim of the holding company
that could be pursued by the committee on behalf of the debtor. Id.
• The committee appealed the bankruptcy court’s rulings with respect to
Counts I and III and the FDIC filed a cross-appeal with respect to Count
II.
26
BANKUNITED
• In BankUnited II, the district court agreed with the bankruptcy court that the Count I claim
arose from acts at the bank level and from harm that the bank suffered, and therefore, was a
derivative claim. The district court determined that the damages sustained by the holding
company under this count were the result of acts taken at the bank level and did not
constitute a separate or unique harm to the holding company. BankUnited II at 5.
• The district court likewise agreed with the bankruptcy court and concluded that Count II was
a direct claim because it alleged damages arising from the holding company’s stock
repurchase, payment of dividends and incurrence of debt at the holding company level that
would not have occurred but for the alleged breaches by the holding company officers and
also, of critical importance to the court, because Count II pled damages unique to the debtor
holding company. BankUnited II at 7.
• However, the district court found that Count III was a direct claim of the holding company, so
it reversed the bankruptcy court on that issue. BankUnited II at 12. As the district court
noted, the decision to funnel $80 million of the holding company’s funds downstream to the
bank arose from actions at the holding company level. As the district court put it: “Appellant
has successfully avoided the pitfalls of Lubin by drafting a proposed claim that not only
targets officers of the holding company, but also that is based upon actions they took at the
holding company level.” Id. at 11.
27
BANKUNITED
• BankUnited II is currently on appeal to the Eleventh Circuit Court of
Appeals, the FDIC having appealed with respect to Counts II and III,
and the committee having appealed with respect to Count I.
28
BRANDT AND VIEIRA
• Similar to the holding of the bankruptcy court in BankUnited I, two other courts have taken
the view that standing is affected by whether the injury for which the holding company seeks
to recover occurred solely at the holding company level or is an injury for which the
subsidiary also could seek to recover against the defendants because they were also
officers or directors of the subsidiary.
• In Brandt v. Bassett (In re Southeast Banking Corp.), 827 F. Supp. 742, 745-46 (S.D. Fla.
1993), rev’d in part, 69 F.3d 1539 (11th Cir. 1995), the court held that a claim on behalf of a
debtor holding company against its officers and directors for loss of its interest in its failed
bank subsidiary was derivative when defendants were also officers and directors of the
bank. This case is routinely cited by the FDIC in derivative versus direct standing disputes.
• Likewise, the district court in Vieira v. Anderson, 2011 WL 3794234, *5 (D.S.C. 2011)
reached the same conclusion. Unlike in some of these other cases, however, the FDIC was
not involved and it was solely the defendant directors and officers who raised the standing
argument. Based on the FDIC’s lack of involvement, the trustee argued that FIRREA was
not implicated. This was soundly rejected by the district court. Id. at *4.
29
BRANDT AND VIEIRA
• Although the trustee in Vieira argued that she drafted her complaint in light of the Eleventh
Circuit’s decision in Lubin, the district court rejected her contention: “The fatal shortcoming
in her pleading, aptly described by the Eleventh Circuit, is that ‘[t]he alleged harm to the
Holding Company stems from the Bank officers' management of Bank assets. This harm is
inseparable from the harm done to the Bank.’ All of the directors and/or officers of
Bancshares were the directors and/or officers of the Bank. ‘That the Bank officers' poor
business choices reduced the value of the Holding Company's investment does not alter the
fact that the harm is decidedly a derivative one.’ ” Id. at *3-4 (internal citations omitted).
• The Vieira decision is currently on appeal to the United States Court of Appeals for the
Fourth Circuit.
30
Framing the D&O Complaint in an effort
to withstand attack by the FDIC
• As should be clear by now, pleading injury to the holding company is
important and requires some care and attention.
• When a parent corporation (or representative of its bankruptcy estate)
sues its own officers and directors for breach of fiduciary duty to the
parent, the claim is not a derivative claim, even if the claim implicates
the parent corporation’s relationship with its subsidiary.
• The appropriate inquiry is whether the complaint adequately states
facts that, if proven, will establish that the defendant officers and/or
directors of the holding company breached their fiduciary duties to the
holding company. If a claim is stated in that manner, then it represents
a direct claim that belongs to the holding company.
31
Framing the D&O Complaint in an effort
to withstand attack by the FDIC
• Examples of pleading causes of action of the bank holding company: To the extent
applicable in the particular situation, you may want to allege that the holding company
officers failed to:
1) provide accurate financial information to the holding company board regarding the
consolidated financial condition of the holding company and its subsidiaries in order for
the board to make properly informed decisions about matters affecting the holding
company,
2) cause effective enterprise-wide risk assessment procedures to be implemented,
3) cause effective internal controls to be implemented,
4) provide the holding company board with all reasonably available information relevant to
decisions affecting the well-being of the holding company and a reasonable opportunity
to consider such decisions before they are made, and
5) exercise vigilant oversight with respect to the bank’s operations in order to protect and
preserve the holding company’s interests in the bank, which is usually its most valuable
asset.
32
FDIC’s Expanded Role in
Bank Holding Company
Insolvencies
Defending Against Assertion of a
Capital Maintenance Claim Under
Sections 365(o) and 507(a)(9) of the
Bankruptcy Code
Presented by
Todd C. Meyers of Kilpatrick Townsend & Stockton LLP
Partner and Chair of the Bankruptcy and Financial Restructuring Team
The Applicable Bankruptcy Code
Sections
• Two provisions of the Bankruptcy Code govern capital maintenance claims: section 365(o)
and section 507(a)(9).
• Section 365(o) of the Bankruptcy Code provides:
In a case under chapter 11 of this title, the trustee shall be deemed to have assumed
(consistent with the debtor's other obligations under section 507), and shall immediately
cure any deficit under, any commitment by the debtor to a Federal depository institutions
regulatory agency (or predecessor to such agency) to maintain the capital of an insured
depository institution, and any claim for a subsequent breach of the obligations thereunder
shall be entitled to priority under section 507. This subsection shall not extend any
commitment that would otherwise be terminated by any act of such an agency.
• Section 507(a)(9) of the Bankruptcy Code provides:
The following expenses and claims have priority in the following order:
(9) Ninth, allowed unsecured claims based upon any commitment by the debtor to a
Federal depository institutions regulatory agency (or predecessor to such agency) to
maintain the capital of an insured depository institution.
34
Signed Writing Requirement
• Such a commitment must be found in a signed writing. See Wolkowitz
v. Fed. Deposit Ins. Corp. (In re Imperial Credit Indus.), 527 F.3d 959,
964 (9th Cir. 2008).
35
Regulatory Structure
The Regulators
• Bank holding companies and banks are regulated by the following:
– The Federal Reserve System Board of Governors. Significant authority is conferred
upon 12 regional Federal Reserve banks. The Board of Governors regulatory
jurisdiction extends over a variety of banking institutions, including state-chartered
banks and trust companies that opt to become members of the Federal Reserve
System, and bank holding companies.
– The FDIC is the primary federal regulator of state-chartered banks that do not elect to
become members of the Federal Reserve System.
– The Office of the Comptroller of the Currency regulates “national association” banks.
As of July 21, 2011, it also regulates federal savings and loans and federal savings
banks. Prior to July 21, 2011, the Office of Thrift Supervision had such responsibility,
but it has since been merged into the Office of the Comptroller of the Currency.
– State-chartered banks are also subject to regulation by state banking agencies.
36
Regulatory Structure
Types of Enforcement Actions
• Board of Governors: There are essentially two types of enforcement actions
which the Board of Governors may take: (1) informal supervisory actions and (2)
formal supervisory actions. A Memorandum of Understanding (discussed later)
is one type of informal supervisory action. By contrast, written agreements and
cease and desist orders (also discussed later) are types of formal supervisory
actions.
• FDIC: Among other things, the FDIC may issue written agreements, cease and
desist orders, capital directives, and prompt corrective action directives.
• Office of the Comptroller of the Currency: Among other things, the Office of the
Comptroller of the Currency may issue formal agreements, prompt corrective
action directives, and cease and desist orders.
37
How does the FDIC Assert Such a
Claim?
• Ideally, the FDIC, as receiver for a failed bank, will have a guaranty
from the holding company that unequivocally provides for the holding
company to guaranty the capital levels of its bank subsidiary and, when
needed, to infuse capital into the bank subsidiary. In the absence of
such an agreement, the FDIC typically relies on a combination of
regulatory provisions and documents to assert entitlement to such a
claim:
– statutory and regulatory provisions set forth in 12 U.S.C. § 1831o(e)(2)(c)(ii), 12
U.S.C. § 1464(s), and 12 C.F.R. § 225.4
– Written Agreements
– Formal Agreements
– Memoranda of Understanding
– Capital Directives
– Cease and Desist Orders
– Capital Plans
38
The Statutory Scheme
Prompt Corrective Action (“PCA”), 12 U.S.C. § 1831o(e)(2)(c)(ii)
• PCA provides one avenue for bank regulators to obtain a commitment from a
bank holding company to maintain the capital of its bank subsidiary.
• This type of enforcement action is entirely separate from other formal remedies
available to the FDIC and other regulators for enforcement of regulatory
requirements, such as cease and desist orders.
• The concept of PCA was ushered in with the enactment of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the “FDICIA”), Pub. L. No.
102-242, 105 Stat. 2236 (1990). FDICIA was intended to enable and encourage
regulatory agencies, such as the FDIC, to act more quickly and aggressively in
addressing financial problems of insured depository institutions.
• The FDICIA mandates that regulatory agencies take certain prescribed actions if
a bank fails to meet minimum capital requirements. 12 U.S.C. § 1831o.
39
The Statutory Scheme
PCA, 12 U.S.C. § 1831o(e)(2)(c)(ii)
• If an insured institution is determined, after notice and opportunity for hearing, to
be in an unsound condition or to be engaging in unsound practices, the
institution may be deemed “undercapitalized.” 12 U.S.C. § 1831o(g).
• PCA powers are triggered by written notice from the regulatory agency of its
intent to issue a directive under the FDICIA (a “Supervisory Prompt Corrective
Action Directive”) unless the agency determines that immediate action is
required (in which case the agency may issue a Supervisory Prompt Corrective
Action Directive without prior notice).
• After notification to an insured financial institution of intent to issue a Supervisory
Prompt Corrective Action Directive, the regulatory agency may issue such a
directive.
40
The Statutory Scheme
PCA, 12 U.S.C. § 1831o(e)(2)(c)(ii)
• Within 45 days of being deemed “undercapitalized,” the affected institution must submit a
“capital restoration plan” for approval to the regulatory agency. Otherwise, the affected
institution becomes subject to significant restrictions on its activities. 12 U.S.C. §
1831o(e)(2) & (f)(1)(B)(2).
• The appropriate regulator then has 60 days after submission of the restoration plan to
accept or reject it. 12 U.S.C. § 1831o(e)(2)(D)(ii).
– Before a “capital restoration plan” will be approved, among other things, each company
that controls the institution must submit a guaranty that the institution will comply with
the plan until it has been “adequately capitalized” for each of four consecutive calendar
quarters. 12 U.S.C. § 1831o(e)(2)(C); 12 C.F.R. §325.104.
• The liability of a holding company under the guaranty is statutorily limited to the lesser of (i)
the amount necessary to bring the institution into compliance with all applicable capital
standards as of the date that the institution fails to comply with its “capital restoration plan”
or (ii) five percent (5%) of the institution’s total assets. 12 U.S.C. § 1831o(e)(2)(E).
41
The Statutory Scheme
12 U.S.C. § 1464(s)
• Section 12 U.S.C. § 1464(s) authorizes the Office of the Comptroller of
Currency to establish minimum capital requirements for savings
associations. 12 U.S.C. § 1464(s)(1).
• When savings associations fail to meet these minimum capital
requirements, the appropriate Federal banking agency may require the
savings association to, among other things, “submit and adhere to a
plan for increasing capital which is acceptable to the appropriate
Federal banking agency.” 12 U.S.C. § 1464(s)(4)(A).
42
The Statutory Scheme
12 C.F.R. § 225.4
• A bank holding company should “serve as a source of financial and managerial
strength to its subsidiary banks and shall not conduct its operations in an unsafe
or unsound manner.” 12 C.F.R. § 225.4(a)(1).
• A bank holding company’s failure to meet its obligations to serve as a source of
strength to its subsidiary bank, including an unwillingness to provide appropriate
assistance to a troubled or failing bank, will generally be considered by the
Board of Governors of the Federal Reserve System (“Board of Governors”) to
be “an unsafe and unsound banking practice or a violation of Regulation Y, or
both, particularly if appropriate resources are on hand or are available to the
bank holding company on a reasonable basis.” Policy Statement on the
Responsibility of Bank Holding Companies to Act as a Source of Strength to
Their Subsidiary Bank, 52 Fed. Reg. 15707 (April 30, 1987).
43
The Statutory Scheme
12 C.F.R. § 225.4
• This policy behind 12 C.F.R. § 225.4 is further explicated in the Board of Governors’ Bank Holding
Company Manual which explains that a bank holding company should serve as source of strength when it is
in a position to do so (i.e., when it has available resources):
[A] bank holding company should stand ready to use available resources to provide adequate capital
funds to its subsidiary banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary
banks in a manner consistent with the provisions of the policy statement. . . Accordingly, it is the Board’s
policy that a bank holding company should not withhold financial support from a subsidiary bank in a
weakened or failing condition when the holding company is in a position to provide the support.
BD. OF GOVERNORS OF FED. RESERVE SYS., BANK HOLDING COMPANY SUPERVISION MANUAL § 2010.0.1 at
p. 2 (December 1992) (emphasis added), available at
http://www.federalreserve.gov/boarddocs/supmanual/bhc/bhc.pdf. See also Policy Statement on the
Responsibility of Bank Holding Companies to Act as Sources of Strength to Their Subsidiary Bank, 52
Fed. Reg. 15707 (April 30, 1987) (noting the “fundamental and long-standing principle underlying the
Federal Reserve’s supervision and regulation of bank holding companies” that bank holding companies
should serve as a source of financial and managerial strength to their subsidiary banks).
44
The Documents
Memoranda of Understanding (“MOUs”)
• MOUs are a type of informal supervisory action, where the regulatory
agency has notified the board and management that there are
problems that warrant attention. See Office of Thrift Supervision,
Examination Handbook, Administration, Section 080 at 080.5 (July
2008).
• MOUs are written informal commitments that the company will correct a
violation of law, regulation, or an unsafe or unsound practice. Id. at
080.6.
• These MOUs usually contain some sort of commitment to maintain a
proscribed capital ratio, or to undertake certain actions to address
weaknesses in a subsidiary.
45
The Documents
Formal Written Agreements
• Formal supervisory actions are enforceable under the Federal Deposit Insurance Act (12
U.S.C. § 1818). These include formal written agreements and cease and desist orders.
• Formal written agreements include supervisory agreements and capital directives under 12
C.F.R. § 567.
• Typically, supervisory agreements require a bank holding company to take corrective action
with respect to violations of law or regulation or continued unsafe or unsound practice.
Unlike violations of other formal actions, violations of supervisory agreements are not
enforceable in federal court (12 U.S.C. § 1818(i)).
• Capital Directives typically establish and enforce capital levels. A capital directive can be
based on: (a) a savings association’s noncompliance with a capital requirement established
under 12 C.F.R. §§ 567.2 and 567.3; (b) a written agreement under 12 U.S.C. § 1464(s);
and (c) a condition for approval of an application.
46
The Documents
Cease and Desist Orders
• Generally, the Federal Reserve may use its cease and desist authority against a
regulated entity when it finds that the entity is engaging in a violation of law,
regulation, or an unsafe or unsound practice. 12 U.S.C. § 1818(b).
• A cease and desist order may require the entity subject to the order to cease
and desist from the practices and violations or take affirmative actions to correct
the violations or practices. See generally BD. OF GOVERNORS OF FED. RESERVE
SYS., COMMERCIAL BANK EXAMINATION MANUAL § 5040.1 at pp. 1-5.
• These orders, similar to written agreements, may require a bank holding
company to submit a capital plan, detailing how the holding company will
maintain certain capital ratios.
• These orders also may reiterate the “source of strength” doctrine noted above.
47
The Case Law
Cases Holding that a Capital Maintenance Obligation was Created
Resolution Trust Corp. v. FirstCorp, Inc. (In re FirstCorp, Inc.), 973 F.2d 243 (4th
Cir. 1992):
• A bank holding company, prior to obtaining approval for its acquisition of a
savings and loan association, was required to maintain certain conditions set
forth by the Federal Home Loan Bank Board, one of which was agreeing to a
provision which provided that “the regulatory net worth of [the bank] shall be
maintained at the greater of (1) three percent of total liabilities …, or (2) a level
consistent with that required by [specific regulation] … and where necessary, to
infuse sufficient additional equity capital … to effect compliance with such
requirement.” Id. at 244 (emphasis added).
• The Fourth Circuit held that this constituted a capital maintenance obligation
within the meaning of section 365(o) of the Bankruptcy Code. Id. at 251.
48
The Case Law
Cases Holding that a Capital Maintenance Obligation was Created
Franklin Sav. Corp. v. Office of Thrift Supervision, 303 B.R. 488 (D. Kan.
2004):
• As a condition to maintain approval of a merger and acquisition, the
holding company provided a written affidavit to agree to a condition set
forth by the Federal Home Loan Bank Board that the holding company
“will cause the net worth of [the bank] to be maintained at a level
consistent with that required of institutions insured twenty years or
longer by [specific regulation] …, infusing sufficient additional equity
capital to affect [sic] compliance with such requirement whenever
necessary.” Id. at 491 (emphasis added).
• The district court held that that the holding company’s written affidavit
agreeing to this condition created a capital maintenance obligation. Id.
at 498.
49
The Case Law
Cases Holding that a Capital Maintenance Obligation was Created
Office of Thrift Supervision v. Overland Park Fin. Corp. (In re Overland
Park Fin. Corp.), 236 F.3d 1246 (10th Cir. 2001):
• In order to obtain approval of an acquisition, the holding company
stipulated in writing to the Federal Home Loan Board that “it will cause
the net worth of [the bank] to be maintained at a level consistent with
[specific regulation], and where necessary, that it will infuse sufficient
additional equity capital to effect compliance with such requirement.”
Id. at 1249 (emphasis added).
• The Tenth Circuit held that this stipulation created a binding obligation
to maintain capital. Id.
50
The Case Law
Cases Holding that a Capital Maintenance Obligation was Created
Wolkowitz v. Fed. Deposit Ins. Corp. (In re Imperial Credit Indus.), 527 F.3d 959 (9th
Cir. 2008):
• The FDIC instituted a Prompt Corrective Action against the holding company,
and the holding company was required to submit a capital restoration plan,
along with a performance guaranty. Id. at 965.
• In the performance guaranty, the holding company committed itself to
“absolutely, unconditionally and irrevocably guarantee[] the performance of
[subsidiary] under the terms of the Capital Plan and … pay the sum demanded
to [subsidiary] or as directed by the [FDIC] in immediately available funds.” Id.
• The Ninth Circuit held that this guaranty created an enforceable capital
maintenance obligation. Id. at 968.
51
The Case Law
Cases Holding that a Capital Maintenance Obligation was Not Created
In re Colonial BancGroup, Inc., 436 B.R. 713 (Bankr. M.D. Ala. 2010):
• The bankruptcy court first examined whether a capital maintenance commitment
within the meaning of section 365(o) of the Bankruptcy Code had been made, by
analyzing (i) an agreement between the debtor bank holding company and the
Federal Reserve Bank of Atlanta, (ii) a memorandum of understanding between
the debtor and the Alabama Banking Department and the Federal Reserve Bank
of Atlanta, and (iii) a cease and desist order against the debtor. Id. at 730.
• After reviewing these documents, the court found that “the Debtor and the
Federal Reserve did not intend to create a commitment in the Debtor to maintain
the capital of Colonial Bank within the meaning of 11 U.S.C. § 365(o)”
inasmuch as the language of such documents did not expressly provide for a
capital maintenance commitment. Id. at 733.
52
The Case Law
Cases Holding that a Capital Maintenance Obligation was Not Created
In re Colonial BancGroup, Inc., 436 B.R. 713 (Bankr. M.D. Ala. 2010):
• The court distinguished the language of the documents in that case from the four cases discussed above,
and opined that:
The documents do not require the Debtor to comply on behalf of the Bank or impose liability on the
Debtor in the event the Bank fails to reach the required capital ratios…The language is broad and
general and requires only that the Debtor “assist” the Bank…Most importantly the language does
not require the Debtor to make a capital infusion, in any amount, in the Bank.
Id. at 731-33.
• The court also held that section 365(o) is inapplicable where the bank subsidiary is closed prior to the
holding company filing for bankruptcy protection:
11 U.S.C. § 356(o) does not apply to a capital maintenance commitment where the commitment cannot
be assumed and cured because the underlying depository institution is no longer operating. To hold
otherwise would ignore the statutory framework of the Code. Congress intended to address claims
based on such commitments under 11 U.S.C. § 507(a)(9).
Id. at 738.
53
The Case Law
Cases Holding that a Capital Maintenance Obligation was Not Created
Fed. Deposit Ins. Co. v. AmFin Fin. Corp., Case No. 1:10-CV-1298, 2011 WL 2200387 (N.D. Ohio June 6,
2011):
• The FDIC, as receiver for a failed bank, argued that the holding company had made a commitment to
maintain the capital of the bank by virtue of, among other things, two cease and desist orders, a capital
management policy and a three-year strategic business plan.
• The capital management policy and the three-year strategic business plan submitted by the holding
company “laid out a plan to raise capital and increase the capital ratios” Id. at *7. The court held that “[t]he
[capital management policy] and the three-year strategic business plan were not, and did not contain, a
commitment by [AmFin] to maintain the capital of the Bank. Rather, they contained a plan, projection, or
description of a preferred course of action.” Id. at *11.
• The cease and deist orders required the holding company to achieve and maintain certain capital levels and
to submit a capital plan detailing how those capital levels would be achieved and maintained. Nevertheless,
the AmFin court found: “Paragraph 4(a) of the Cease and Desist Order does not create a commitment by
[AmFin] to maintain the capital of the Bank, as the only requirement in this paragraph is an obligation to
‘submit a plan.’ ” and “Paragraph 8 [of the cease and desist order] was intended to create an obligation by
the Board to oversee the Bank’s attempt’s to obtain and maintain specific capital ratios, but there is no
evidence that it was intended to create or impose an enforceable obligation by [AmFin] to maintain the
capital of the Bank . . . . [Thus,] Paragraph 8 of the Cease and Desist Order is not a commitment to
maintain the capital of the Bank.” Id.
54
Lesson from Colonial and AmFin
• Both courts refused to find a capital maintenance commitment where the
documents in question merely required the holding company to “assist” its
banking subsidiary in maintaining capital levels and complying with its regulatory
agreements and where the documents did not specifically require the holding
company to infuse capital into the bank subsidiary.
• Both courts held that the “source of strength” doctrine, without more, does not
require a holding company to maintain the capital levels of its bank subsidiary.
– The Colonial court concluded that “the source-of-strength doctrine [found in 12 C.F.R.
§ 225.4] does not require a bank holding company to make capital contributions to its
subsidiaries.” Colonial, 436 B.R. 730 n.15.
– The AmFin court held: “There is no legal requirement, under the general banking
regulations, that a holding company commit to maintain the capital of a bank; that it
guarantee the performance of the bank; or, that it infuse its own capital into a failing
bank, whether or not the holding company or the bank may be facing a potential
bankruptcy.” AmFin, 2011 WL 2200387, at *7.
55
What if a Capital Maintenance Claim Exists?
Avoidance as a Fraudulent Transfer
• Even if a court finds that a bank holding company made a commitment
to maintain the capital of its bank subsidiary, such a commitment may
be a fraudulent conveyance. See Wolkowitz, 527 F.3d at 972-73
(holding that a capital maintenance obligation can be avoided under
section 548 of the Bankruptcy Code). This may be demonstrable if the
alleged commitment is significant, the holding company’s financial
condition was weak at the time it was given, and if the holding company
received no financial consideration in return.
56
What if a Capital Maintenance Claim Exists?
Potential Section 502(d) Objections
• A capital maintenance claim may be subject to disallowance under section
502(d) of the Bankruptcy Code to the extent the bank received avoidable
transfers prior to the holding company’s bankruptcy filing (such as capital
infusions by the holding company to the bank with no consideration).
• To the extent such avoidable transfers exist, a trustee or debtor-in-possession
may be able to obtain disallowance of such claim under section 502(d) unless
and until the avoidable transfers are repaid (even if such claim is entitled to
priority under section 507(a)(9) of the Bankruptcy Code). See In re Eye Contact,
Inc., 97 B.R. 990, 991-93 (Bankr. W.D. Wis. 1989) (approving of the use of
section 502(d) to defeat a section 507(a)(3) priority claim); In re Plastech
Engineered Prods., Inc., 394 B.R. 147, 164 (Bankr. E.D. Mich. 2008) (holding
that priority claims, other than section 507(a)(2), are “undoubtedly . . . subject to
the claims allowance process under section 502 and to the disallowance
provisions of section 502(d)….”).
57
LITIGATION ASSETS IN BANK HOLDING
COMPANY BANKRUPTCIES
AFTER DODD-FRANK
James D. Higgason, Jr.
Diamond McCarthy LLP
Houston, Texas
713.333.5145
59
SUMMARY
I. Definition of “Bank” and “Bank Holding Company”
II. Litigation Assets Often in Bank Holding Company Bankruptcy Estates
III. Fraudulent Transfer Claims
A. “Actual Intent”
B. “Constructive Intent”
C. Liability for fraudulent transfers
IV. The Regulatory Landscape
V. Anatomy of a Bank Failure
VI. Fraudulent Transfer Claims Against the FDIC
VII. Potential Parties
VIII. Recent Federal Statutes Relevant to Fraudulent Transfer Claims Against the FDIC
A. Dodd-Frank § 616(d)
B. Gramm-Leach-Bliley § 730
C. Dodd-Frank Title II
60
Definition of “Bank” and “Bank Holding Company”
• 12 U.S.C. § 1841(c) defines a “bank” as an insured bank as defined in
12 U.S.C. § 1813(h) or as an institution that accepts demand deposits
and makes commercial loans. For our purposes, a bank includes
national banks, state banks, district banks, savings banks, and thrifts.
• 12 U.S.C. § 1841(a)(1) defines a “bank holding company” as “any
company which has control over any bank or any company that is or
becomes a bank by virtue of this chapter.”
• 84% of commercial banks in the U.S. are directly or indirectly owned
or controlled by a bank holding company.
• All larger banks with more than $10 billion in assets are owned by
bank holding companies. See www.fedpartnership.gov/bank-life-
cycle/grow-shareholder-value/bank-holding-companies.cfm.
61
Litigation Assets Commonly
Held by Bank Holding Company
Bankruptcy Estates
1. Claims against directors & officers
2. Claims against professionals that
provided pre-petition services
3. Fraudulent transfer and preference
claims
62
Fraudulent Transfer Claims
• Brought under Bankruptcy Code Section 548 and similar state law creditors’ rights statutes
• Section 548 authorizes a bankruptcy trustee to avoid two types of fraudulent transactions:
(1) “Actual intent” transfers under § 548(a)(1)(A)
and
(2) “Constructive intent” transfers under § 548 (a)(1)(B)
63
“Actual Intent” Claims
Section 548(a)(1)(A) allows a bankruptcy trustee to avoid any transfer made or obligation incurred by the debtor if the transfer was made “with actual intent to hinder, delay, or defraud” the debtor’s creditors.
Actual intent claims can be established either with direct evidence or with indirect evidence reflected by “badges” of fraud. A non-exclusive list of such badges is contained in Section 4(b) of the Uniform Fraudulent Transfer Act.
64
Constructive Intent Claims
Section 548(a)(1)(B) provides that a bankruptcy trustee may avoid transfers the debtor made or obligations the debtor incurred if the debtor received less than reasonably equivalent value in exchange for the transfer or obligation and
1) Was insolvent on the date of the transfer or became insolvent as a result of the transfer;
2) Was engaged in a business or transaction, or was about to engage in a business or transaction, which had unreasonably small capital after the transfer;
3) Intended to incur debts that would be beyond the Debtor’s ability to pay when the debts matured; or
4) Made a transfer to or for the benefit of an insider under an employment contract and not in the ordinary course of business.
65
Liability for Avoided Transfers
Bankruptcy Code § 550(a) provides that if a transfer is avoided under Section 548, then the bankruptcy trustee may recover for the benefit of the estate the value of the transferred property from:
(1) The initial transferee;
(2) The entity for whose benefit the transfer was made; or
(3) Any immediate or mediate transferee of the initial transferee.
66
The Regulatory Landscape The Primary Regulator:
The Office of the Comptroller of the Currency (“OCC”) has primary regulatory responsibility over national banks and thrifts. State bank regulators regulate state banks.
The Federal Reserve:
The Federal Reserve Board of Governors and the Federal Reserve Banks regulate bank holding companies.
The Federal Deposit Insurance Corporation (“FDIC”):
The FDIC administers the Deposit Insurance Fund that insures deposits at member banks. An FDIC receivership assumes the assets of a failed bank or conservatorship.
Regulatory Cooperation
All federal bank regulators and the FDIC are required to cooperate to resolve the problems of distressed insured banks in a way that causes the least possible loss to the FDIC Deposit Insurance Fund. Since Deposit Insurance Funds are at risk, the FDIC typically is consulted early and often regarding the resolution of problems of distressed banks.
67
Anatomy of a Typical FDIC Insured Bank Failure
• An FDIC insured bank becomes distressed and under capitalized.
• Bank regulators intervene and direct the bank to raise capital.
• The distressed bank’s holding company is encouraged or required to act as a “source of strength” by downstreaming funds to the troubled bank.
• The bank’s primary regulator declares the bank insolvent and closes it.
• The failed bank’s assets, including any assets transferred from the bank holding company to the bank, are placed in a receivership administered by the FDIC.
68
Fraudulent Transfer Claims
Against the FDIC
• Pre-petition transfers to subsidiary banks that
subsequently were seized by the FDIC may be
avoidable as fraudulent transfers.
• A bank holding company bankruptcy estate’s
largest asset is often a fraudulent transfer claim
against the FDIC to recover pre-petition
transfers to a failed subsidiary bank that was
placed in an FDIC receivership.
69
Potential Defendants in a
Fraudulent Transfer Action If there is evidence that a bankrupt bank holding
company made a fraudulent transfer to a subsidiary bank that subsequently was placed in FDIC receivership, the trustee will want to explore whether it is appropriate to seek to recover from:
1) The FDIC in its corporate capacity as the entity for whose benefit the transfer was made;
2) The FDIC in its receivership capacity as an immediate transferee from the initial transferee (the subsidiary bank); and
3) Any bank or other entity that may have acquired the transferred assets from the FDIC receivership.
70
Recent Federal Statutes Relevant in Fraudulent
Transfer Actions Against the FDIC
Dodd-Frank Act Section 616
Section 616(d) of the Dodd-Frank Act codifies the Federal Reserve’s “Source of Strength” doctrine. It authorizes federal bank regulators to require a bank holding company to act as a “source of financial strength” for a distressed subsidiary bank to the extent it is able to do so.
Bank regulators have used the source of strength doctrine and other means to encourage or compel bank holding companies to transfer assets to distressed subsidiary banks. Regulators control banks and bank holding companies to such an extent that it may be appropriate to impute the FDIC’s intent to the bank holding company transferor in connection with an actual intent fraudulent transfer claim.
Gramm-Leach-Bliley Act Section 730
Section 730 of the Gramm-Leach-Bliley Act (12 U.S.C. § 1828(u) states, No person may bring a claim against any Federal banking agency (including in its capacity as conservator or receiver)
for the return of assets of an affiliate or controlling shareholder of the insured depository institution transferred to, or for the benefit of, an insured depository institution by such affiliate or controlling shareholder of the insured depository institution, or a claim against such Federal banking agency for monetary damages or other legal or equitable relief in connection with such transfer, if at the time of the transfer (A) the insured depository is subject to any direction issued in writing by a Federal banking agency to increase capital . . . .
Section 730 also states, however, that a “claim” barred by the provision “does not include any claim based on actual intent to hinder, delay or defraud” creditors pursuant to applicable federal and state fraudulent transfer laws.
71
Dodd-Frank Title II
Title II of the Dodd-Frank Act sets up a mechanism pursuant to which certain systematically important
bank holding companies and other financial institutions can be placed in FDIC receivership, like failed
banks, rather than going through the bankruptcy process.
72
GLBA Section 730’s Effect on Fraudulent
Transfer Claims Against the FDIC
• Constructive intent claims to avoid transfers occurring after a written directive to raise capital has issued are prohibited.
• Constructive intent claims to avoid transfers made before a directive to raise capital is issued are not barred.
• Actual intent claims are authorized by the statute.
• The statute is designed to protect good faith efforts on behalf of regulators and to encourage bank holding companies to recapitalize viable distressed subsidiary banks.
• Regulators are courting exposure if they cause a bank’s holding company to downstream assets to a failing subsidiary bank, knowing the bank is likely to fail and knowing the transferred assets will likely end up in the coffers of the FDIC when the bank is placed in receivership, because GLBA § 730 specifically allows debtors to avoid actual intent fraudulent transfers.
73
Title II of the Dodd-Frank Act
• Title II of the Dodd-Frank Act establishes a mechanism pursuant to which systematically significant bank holding companies and other financial companies can be liquidated by the FDIC through means similar to those the FDIC currently uses to resolve failed banks, rather than pursuant to the normal bankruptcy process.
• If the power is ever used to liquidate a bank holding company, Section 548 fraudulent transfer actions likely could not be pursued. Section 210 of the Act authorizes the FDIC to bring fraudulent transfer actions as receiver of a bank holding company. However, while § 212(c) directs the FDIC to “take appropriate action” to resolve any conflicts of interest that may arise in its role as receiver of a bank holding company and its subsidiary bank, the likelihood that the FDIC as receiver of a bank holding company would take on action that would result in suing the FDIC as receiver of the subsidiary bank to avoid a fraudulent transfer is remote.
• Title II does not address the “too big to fail” problem.
• Many knowledgeable commentators have noted that systematically important financial companies likely will never be placed in receivership precisely because they are systematically important. They believe FDIC resolution authority over such entities is a power that will not be used except in rare circumstances.
• The vast majority of failed bank holding companies will continue to be resolved via the normal bankruptcy process.