Banking giant, Bank of America, ordered to dish out $540 million to the Federal Deposit Insurance Corporation (FDIC) over alleged risk-related disputes.
Bank of America Ordered to Pay $540.3 Million in Unpaid Deposit Insurance Assessments
In a significant development, Bank of America has been ordered to pay $540.3 million to the Federal Deposit Insurance Corporation (FDIC) for underpaying deposit insurance obligations. The ruling was in response to a lawsuit filed by the FDIC in 2017.
The dispute between the bank and the FDIC centers around a 2011 rule regarding how banks report exposure to counterparty risk. Bank of America, in a move that lowered its concentration measure and the overall amount it paid in deposit insurance assessments for a period of time, reported counterparty exposures individually instead of at the consolidated entity level.
The FDIC contends that Bank of America made false or fraudulent statements about its counterparty exposures with the intent to evade its assessments. However, Bank of America denies any intentions to evade and notes that it repeatedly informed the FDIC of its counterparty exposures reporting.
The court found that Bank of America had fair notice of the requirements regarding deposit insurance assessments. The bank was ordered to pay a portion of the unpaid assessments, but not any earnings. The determined amount fell short of the $1.12 billion the FDIC claimed the bank didn't pay.
This ruling comes at a time when the FDIC is under scrutiny due to ongoing challenges and calls for reform in the U.S. deposit insurance framework revealed by recent bank failures and evolving banking practices. The FDIC's role in maintaining financial stability by providing deposit insurance and managing bank resolutions outside normal bankruptcy frameworks is under the spotlight.
Bank of America's first-quarter litigation costs increased due to this ruling, with the bank's first-quarter non-interest expenses totaling $17.8 billion, a 6% quarter-over-quarter increase. Despite the legal setback, the bank expects the loans to add about $100 million in net interest income annually.
The judge in the case, Loren L. AliKhan, stated that the law is not on Bank of America's side and that the lender is liable for unpaid assessments that are "lawfully payable." The order was signed on March 31 and made public on Monday.
In a separate development, Bank of America purchased an $8 billion portfolio of residential mortgage loans. The seller of the portfolio was not named, but was reportedly TD. The exact implications of this acquisition on the bank's financial position and deposit insurance obligations remain to be seen.
As the dispute between Bank of America and the FDIC unfolds, it highlights the complexities and evolving nature of the deposit insurance system in the United States. The case underscores the importance of clear communication and compliance with regulatory requirements in the banking sector.
- The ruling against Bank of America for underpaying deposit insurance obligations could potentially impact the finance industry, as it emphasizes the importance of compliance with banking-and-insurance regulations, particularly those related to deposit insurance assessments.
- In the midst of contention over deposit insurance assessments, Bank of America is also involved in a real-estate transaction, having purchased an $8 billion portfolio of residential mortgage loans, which may influence its financial position and future business operations.
- The ongoing dispute between Bank of America and the FDIC could influence investing decisions in the bank, as the court's findings might serve as a precedent for future cases related to bank-FDIC relationships, insurance assessments, or counterparty risks within the finance industry.
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