Over 400 banks have been closed since the onset of the financial crisis in mid-2008. During that time, more than 300 lawsuits have been authorized to be brought against officers and directors of the failed banks, according to the FDIC. Presumably, the vast majority of authorized suits seek recoveries from D&O insurance carriers for the alleged negligence and gross negligence of former officers or directors. A sizable number of those suits – those actually filed and those authorized but not filed – have targeted directors who were members of the directors’ loan committee of the failed bank. We have seen cases where the FDIC targeted only those committee members and not directors who were not on such a committee.
The FDIC acknowledges that in making decisions whether to sue a director, among other things, it makes a distinction between so-called inside and outside directors. An inside director usually is a member of the board who also is an officer of the institution, such as the Chief Executive Officer. An outside director is one who does not participate in the conduct of the day-to-day affairs of the bank, though he or she serves as a director and may own a relatively small amount of stock. This suggests that there could be circumstances in which some outside directors will be treated differently from other directors.
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