The now defunct Maine National Bank has asked the U.S. Supreme Court to decide whether regulators can force a bank to cover losses stemming from the failure of an affiliate.
In its May 6 appeal, a bankruptcy trustee argued on behalf of the bank's shareholders that the Federal Deposit Insurance Corp. violated the takings clause of the Fifth Amendment when it seized the institution in 1991. The FDIC relied on the cross-guarantee provision of the 1989 thrift bailout law, which requires banks to cover their affiliates' losses.
"The Supreme Court has taken several takings cases," said Jeffrey C. Martin, a partner in the Washington law firm of Shea & Gardner who represents the bank. "We have a respectable chance."
The case began when the FDIC presented Maine National Bank with a bill for $1 billion to cover the costs of the failure of Bank of New England, an affiliated institution. Maine National, which had a net worth of $65 million, said it couldn't pay the tab. The FDIC then seized the institution.
Michael Crotty, deputy general counsel for litigation at the American Bankers Association, said this case could clarify the government's power to seize banks.
"This is an interesting and important case," Mr. Crotty said. "It is a frightening thing when the government can come in and seize property."