A banking regulator on Monday sued Bank of America Corp. over $542 million in deposit insurance that it said the second-largest U.S. bank “refuses to pay.”
The Federal Deposit Insurance Corporation (FDIC) charges banks a fee to protect customer deposits. The largest financial companies must pay more for that protection.
“Bank of America underreported its counterparty exposures by tens of billions of dollars,” the complaint filed in federal court in Washington said.
Specifically, the FDIC points to “counterparty risk” or the danger that another leading financial firm could fail and cost Bank of America. No other leading lender has understated its counterparty risk as did Bank of America, the complaint said.
Lawyers for the bank said they expected to prevail in court.
According to Thomson Reuters, Michael Krimminger, a lawyer for Cleary Gottlieb who is representing the Charlotte-based bank, said the dispute concerned the interpretation of technical rules governing the insurance fund.
“In my view, the FDIC’s position in this instance is erroneous,” he said.
The FDIC declined to comment.
In another development, the Supreme Court on Monday declined to hear a bid by banks to avoid a Federal Deposit Insurance Corp. lawsuit over the 2009 collapse of Alabama’s Colonial BancGroup Inc.
The justices left in place a May 2016 ruling by the New York-based 2nd U.S. Circuit Court of Appeals that found that the FDIC did not wait too long to sue Credit Suisse Group A.G., First Horizon National Corp., Royal Bank of Scotland Group P.L.C., Wells Fargo & Co. and seven other banks for selling or underwriting toxic mortgage securities that Colonial bought.
Colonial, based in Montgomery, Alabama, went into FDIC receivership in August 2009 after struggling from losses tied to mortgage securities and an aggressive foray into Florida.
Three years later, the FDIC sued the 11 banks, stating that they violated federal securities law by selling $388 million in toxic debt to Colonial in 2007. It said the lawsuit was timely because it had three years from the start of the receivership to sue.
A lower court judge threw out the case, accepting the banks’ argument that the clock ran out in 2010, three years after Colonial bought its securities. But in the reversal, the appeals court found that the U.S. Congress intended that an “extender statute” giving the FDIC more time to pursue some legal claims covered the Colonial case.