The Federal Deposit Insurance Corporation (FDIC) has followed a policy of not telling the public about its settlements with faulty banks, despite the fact that federal law requires transparency.

An investigation by the Los Angeles Times found that since the housing crisis last decade, the FDIC repeatedly chose to settle cases secretly with financial institutions.

Such actions contradict the Federal Deposit Insurance Corp. Improvement Act of 1991, which called for bank settlements to be made public.

One recent example involved Deutsche Bank, which agreed to pay the FDIC $54 million for issuing unsound loans that crippled the bank.

“The deal might have made big headlines, given that the bad loans contributed to the largest payout in FDIC history, $13 billion. But the government cut a deal with the bank’s lawyers to keep it quiet: a ‘no press release’ clause that required the FDIC never to mention the deal “except in response to a specific inquiry,” E. Scott Reckard wrote for the Los Angeles Times.

Presumably, public disclosure of settlements would hurt the reputation of the banks that engaged in financial misdeeds, and thus threaten their profit margins.

-Noel Brinkerhoff

To Learn More:

Sheila Bair and the FDIC’s No Press Release Policy (Corporate Crime Reporter)

Would FDIC Deter Wrongdoing By Announcing Settlements With Banks? (by E. Scott Reckard, Los Angeles Times)

Sheila Bair Steps Down as Head of FDIC (by Noel Brinkerhoff and David Wallechinsky, AllGov)