Document Type

Working Paper

Publication Date

5-10-2017

SSRN Discipline

Monetary Economics eJournals; Industrial Organization & Regulation eJournals; LSN Subject Matter eJournals; Econometrics: Applied Econometric Modeling eJournals; ERN Subject Matter eJournals; Financial Economics Network; CGN Subject Matter eJournals; Organizations & Markets eJournals; Economics Research Network; Legal Scholarship Network; Public Choice & Political Economy eJournals; Corporate, Securities & Finance Law eJournals; Banking & Financial Institutions eJournals; European Economics eJournals; Econometric Modeling: Financial Economics eJournals; Law School Research Papers - Legal Studies; FEN Subject Matter eJournals; Corporate Governance Network; Law & Society eJournals; Law & Society: Private Law eJournals; Econometrics eJournals; Law School Research Papers - Public Law & Legal Theory

Abstract

In the aftermath of the 2008 financial crisis the Federal Deposit Insurance Corporation FDIC brought numerous lawsuits against directors and officers of failed banks asserting that they had breached their fiduciary duty of care Under state corporate law duty of care claims arise in different contexts and courts often apply different standards of liability depending upon the context of the claim In the banking setting the standard of liability for breach of the duty of care is governed by the federal statute FIRREA and the Supreme Court's decision in Atherton v FDIC In Atherton the Court held that FIRREA allows the FDIC to sue directors and officers of failed banks under either a federal gross negligence standard or any applicable state law standard that imposes liability for less culpable conductThis Article integrates the academic literature on the duty of care in the general corporate setting with the literature on the duty of care in the banking setting After discussing how duty of care claims are treated in each setting the Article makes four primary assertionsFirst just as duty of care actions under state corporate law arise in different contexts so too do duty of care actions in the banking settingSecond because the standard of liability can vary depending upon the context it is often a misleading oversimplification to frame the banker liability debate in any particular jurisdiction as a binary choice between negligence and gross negligenceThird because duty of care liability is more nuanced than negligence versus gross negligence the application of FIRREA and Atherton to duty of care claims in the banking setting is more complicated than commentators have appreciatedFinally FDIC guidelines that ignore context and suggest a nationwide standard of liability are inaccurate The FDIC should update its guidelines to accurately reflect both the law and the FDIC's litigation practices

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