The Duty of Care of Bank Directors and Officers
47 Pages Posted: 10 May 2017 Last revised: 2 Oct 2017
Date Written: May 1, 2017
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 conduct.
This 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 assertions.
First, just as duty of care actions under state corporate law arise in different contexts, so too do duty of care actions in the banking setting.
Second, 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 negligence.
Third, 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 appreciated.
Finally, 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.
Keywords: Bank, D&O, Director, Officer, Fiduciary, Duty of Care, FIRREA, FDIC
JEL Classification: G21, G38, K22, K23
Suggested Citation: Suggested Citation