FDIC files lawsuit against large banks responsible for small bank closures

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Large banks accused of causing the failure of Illinois banks

The Federal Deposit Insurance Corp. (FDIC) has filed lawsuits against several large banks this week after seizing control of two smaller banks in Illinois. These banks failed in May of 2009, but the FDIC only recently filed civil suits against the banks once its investigation into the matter came to a conclusion. The lawsuit names Citigroup, JPMorgan Chase, Bank of America, Credit Suisse, Deutche Bank, Royal Bank of Scotland, UBS and HSBC as defendant in the case.

FDIC aims to recover nearly $92 million in damages

According to the reports, these banks made false statements and actively deceived investors regarding the risks associated with security bonds that are supported by home mortgages. The agency claims that the failure of the two banks in Illinois is due to these statements and the inherent risks associated with home mortgages. The cost to the FDIC added up to approximately $200 million.

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Continuous failures may be linked to ongoing economic woes

Bank failures are often associated with the ongoing economic problems that were created by the financial crisis that began in 2008. The economic downturn caused significant problems throughout the U.S. Initially, the crisis caused the closure of several hundred banks throughout the country, a trend that has persisted into this year. The financial crisis also brought several changes to the insurance industry at large, causing many insurance providers to change their business practices in order to adapt to a new economic climate.

Litigation expected to be time consuming process for involved parties

The failure of the two banks in Illinois brings this year’s total to 24. The FDIC is continuing investigations into other banks and expects that other banks will be closed throughout the year. Litigation against the large banks named in the lawsuit is expected to be a long and grueling process that could take several years before the issue is resolved. The banks named as defendants are expected to challenge the lawsuit aggressively.

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