FDIC Claims Over Failed Bank Revived by 5th Cir.

NEW ORLEANS (CN) - Federal regulators can pursue a $2.1 billion recovery from major banks that sold securities backed by residential mortgages before the 2008 financial crisis toppled them, the Fifth Circuit ruled.

The Federal Deposit Insurance Corp. filed the complaint at issue as receiver for Guaranty Bank, an Austin, Texas-based institution that failed in August 2009.

BBVA Compass, a subsidiary of Spain-based Banco Bilbao Vizcaya Argentaria, later bought Guaranty.

The FDIC took aim at Deutsche Bank, Goldman Sachs Group and the Royal Bank of Scotland Group, saying the banks pushed and sold the securities with false statements about the quality of the underlying mortgages.

Those banks had the 2012 suit originally filed in Travis County Court removed to the Western District of Texas where a federal judge dismissed the case on the basis of the statute of limitations.

Finding that the Texas statute of repose barred the FDIC's claims, that court agreed with the banks that the FDIC extender statute "neither revives stale claims, nor applies to statutes of repose or to the securities claims asserted."

Aimed at extending the time period in which federal regulators could recoup lost funds, Congress adopted the statute as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 in the wake of the savings-and-loan crisis.

Reviving the FDIC's case Monday, a three-judge panel with the Fifth Circuit noted that Congress had intended for the FDIC Extender Statute to grant the agency a three-year grace period after its appointment as receiver to investigate potential claims.

In Guaranty's case, the FDIC was appointed receiver on Aug. 21, 2009, and filed suit Aug. 17, 2012.

"But even if the words of the FDIC Extender Statute are considered ambiguous, the statute's structure demonstrates Congress's clear intent to preempt state statutes of repose," Judge Carolyn King wrote for the appellate panel.

King said the FDIC Extender Statute pre-empts "statutes of repose as well as statutes of limitations."

Since the law thus pre-empts the five-year repose period in the Texas Securities Act, the lower "court erred in granting judgment on the pleadings in favor of the" banks, King added.

The 2008 financial crisis caused an explosion in the number of bank failures that the FDIC was called on to resolve, the ruling says.

Twenty-five banks failed from 2001 through 2007; 513 failed between 2008 and 2015, according to an FDIC list of failed banks.

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