Enacted by Congress after the Savings and Loan Crisis of the 1980s, the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) gives the FDIC sweeping authority to resolve the problems posed by a failed financial institution. This authority includes a mandatory administrative claims process to help the FDIC efficiently identify all claims against the receivership estate, promptly pay valid claims against a failed bank, and liquidate the remaining assets of the institution.
FIRREA details how the FDIC administers its claims process. Immediately after the FDIC’s appointment as receiver for a failed bank, it must notify the failed institution’s creditors of the bank’s failure and that they have 90 days to present their claims against the failed bank, together with proof, to the FDIC. Notices are typically mailed to known creditors and also published in area newspapers to put all creditors on notice. Once a claim is submitted, the FDIC has 180 days to allow or disallow the claim. If a creditor fails to timely file a claim with the FDIC, its claim will be disallowed completely.
The public policy underlying this administrative process is to efficiently determine creditors’ claims and preserve the assets of the failed institution without being burdened by complex, costly litigation. This process also gives purchasing banks a degree of certainty about the loan documents and assets that they acquire from the FDIC as receiver of failed banks. As will be discussed in future posts, a federal or state court cannot consider a claim against a failed bank unless the party bringing the claim first complied with the administrative claims process detailed in FIRREA.