FDIC Takeover: How It Affects Your Construction Project
You can't help but notice recent high profile bank failures like IndyMac and Washington Mutual. In each case the Federal Deposit Insurance Corporation (the "FDIC") came in and took over those banks as they have many others. According to a list composed by recession.org, 21 banks already failed in 2009 and 23 banks failed in 2008. In Guessing How Many Banks Will Fail Time magazine reported that research firm RBC Capital Markets revised its estimate for U.S. bank failures in the next 3 years up from 200-300 to over 1,000.
With the looming prospect of more bank failures and FDIC takeovers, you can't help but wonder how they'll affect your construction project. What will happen if the FDIC takes over: (1) the owner's construction lender or (2) the revolving line of credit lender for: (a) the prime contractor, (b) a critical subcontractor, or (c) an architect, engineer, or other designer?
With those kinds of questions in mind, in this post and the series that follows, we'll talk about how the FDIC take over process works, the FDIC's extraordinary powers, and how a takeover can affect your project (1) regardless of your role in the project (owner, designer, contractor, material supplier) and (2) regardless of whether it's your bank that the FDIC takes over.
Banking Insolvency
The first thing you must understand is that banks, thrifts, savings and loans, credit unions, and other "depository institutions" (collectively all together, "banks") don't go into bankruptcy. Because they're so critical to the workings of the U.S. commercial system and stability of society in general, bank insolvencies are treated differently, under different laws, than regular business insolvencies. So the United States Bankruptcy Code specifically excludes banks from becoming debtors under the Bankruptcy Code.
Instead, banking regulators and the FDIC "resolve" insolvent banks. A state banking regulator will start resolution of an insolvent state chartered bank. Either the United States Treasury Department's Office of the Comptroller of the Currency or Office of Thrift Supervision will start resolution of an insolvent federally chartered bank. They do this by putting an insolvent bank that's under their regulatory jurisdiction into a receivership or 
conservatorship. Then they call in the FDIC to act as receiver or conservator for the insolvent bank. That's when resolution of the bank hits the news media and you see a spot on how the FDIC just took over this or that bank today.
In The Next Bank Failure Post
In the next bank failure post, we'll talk about the FDIC, its history and some of its extraordinary powers that can make real big problems on construction projects.
Construction Law Today is a legal blog about construction contracts, disputes, finance, and the people whose job it is to deal with them.
