FDIG NEWS RELEASE
FEDERAL DEPOSIT INSURANCE CORPORATION
FOR RELEASE UPON DELIVERY
FDIC ATTEMPTING TO HELP BANKS SOLVE
DIRECTORS' LIABILITY INSURANCE PROBLEMS
PR-170-86 (10-28-86)
The FDIC is concerned that some banks are unable to obtain liability
insurance for their directors and is attempting to help the industry find an
insurance solution, FDIC Chairman L. William Seidman told the American Bankers
Association today in San Francisco.
Mr. Seidman outlined the following steps the FDIC is taking to help end
the insurance problem in our banks' board rooms:
Meetings with bankers, trade groups and insurers to foster better
communication and understanding and explore solutions.
Discussions with insurers and reinsurers, in the United States and
Europe, to encourage increased insurance availability.
Working with other regulators to develop guidelines for directors and
officers outlining their duties and responsibilities. Mr. Seidman
noted that it would be difficult to sue a director who, in good faith,
had complied with the FDIC guidelines.
Chairman Seidman noted that FDIC lawsuits are not a major cause of the
insurance dilemma. He stressed that lawsuits are brought by the FDIC against
directors and officers only when there is evidence of real negligence or
wrongdoing. "We do not file a 1awsuit in every case where there is 1i ability
insurance coverage, nor do we ignore a potential claim just because there is
no insurance. More importantly, no lawsuit is filed without a thorough
investigation," he said. Mr. Seidman noted that investigations are lengthy
and no suit can be filed without his personal review of the case.
-more-
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St., N.W., Washington, D.C. 20429 • 202-898-6996
FEDERAL DEPOSIT INSURANCE CORPORATION
FOR RELEASE UPON DELIVERY
FDIC ATTEMPTING TO HELP BANKS SOLVE
DIRECTORS' LIABILITY INSURANCE PROBLEMS
PR-170-86 (10-28-86)
The FDIC is concerned that some banks are unable to obtain liability
insurance for their directors and is attempting to help the industry find an
insurance solution, FDIC Chairman L. William Seidman told the American Bankers
Association today in San Francisco.
Mr. Seidman outlined the following steps the FDIC is taking to help end
the insurance problem in our banks' board rooms:
Meetings with bankers, trade groups and insurers to foster better
communication and understanding and explore solutions.
Discussions with insurers and reinsurers, in the United States and
Europe, to encourage increased insurance availability.
Working with other regulators to develop guidelines for directors and
officers outlining their duties and responsibilities. Mr. Seidman
noted that it would be difficult to sue a director who, in good faith,
had complied with the FDIC guidelines.
Chairman Seidman noted that FDIC lawsuits are not a major cause of the
insurance dilemma. He stressed that lawsuits are brought by the FDIC against
directors and officers only when there is evidence of real negligence or
wrongdoing. "We do not file a 1awsuit in every case where there is 1i ability
insurance coverage, nor do we ignore a potential claim just because there is
no insurance. More importantly, no lawsuit is filed without a thorough
investigation," he said. Mr. Seidman noted that investigations are lengthy
and no suit can be filed without his personal review of the case.
-more-
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St., N.W., Washington, D.C. 20429 • 202-898-6996
-2-
"As still a further precaution, we have been testing a procedure whereby
the potential defendants would be advised of our findings and given an
opportunity to submit a written statement before any final litigation
decisions are reached," Mr. Seidman said. "Our intention is to file suit
only when we have found evidence which will make a case and lead to a
financial recovery," he added.
Mr. Seidman urged the banks to consider the example of the mutual funds in
providing a separate budget to independent directors, noting that: "Outside
directors often need extra help to deal with the complexities of banking." He
said
them.
the directors could use the funds to retain independent counsel to assist
"They could choose periodically to retain an outside auditor, an
accountant or a consultant," he said.
11 A separate budget means some additional cost to the banks, but this may
be recovered through a lower insurance premium, better operations and fewer
lawsuits," he said.
Mr. Seidman concluded with an update on the FDIC insurance fund noting
that its year-end 1986 balance will be about $18.8 billion dollars, despite
record failures and expenditures. He added, however, that it is unlikely
there will be an insurance rebate for 1986. "Cash outlays for dealing with
1986 and prior year failures will approach $4.2 billion," he said.
###
"As still a further precaution, we have been testing a procedure whereby
the potential defendants would be advised of our findings and given an
opportunity to submit a written statement before any final litigation
decisions are reached," Mr. Seidman said. "Our intention is to file suit
only when we have found evidence which will make a case and lead to a
financial recovery," he added.
Mr. Seidman urged the banks to consider the example of the mutual funds in
providing a separate budget to independent directors, noting that: "Outside
directors often need extra help to deal with the complexities of banking." He
said
them.
the directors could use the funds to retain independent counsel to assist
"They could choose periodically to retain an outside auditor, an
accountant or a consultant," he said.
11 A separate budget means some additional cost to the banks, but this may
be recovered through a lower insurance premium, better operations and fewer
lawsuits," he said.
Mr. Seidman concluded with an update on the FDIC insurance fund noting
that its year-end 1986 balance will be about $18.8 billion dollars, despite
record failures and expenditures. He added, however, that it is unlikely
there will be an insurance rebate for 1986. "Cash outlays for dealing with
1986 and prior year failures will approach $4.2 billion," he said.
###