Federal Deposit Insurance Corp. cannot seize a healthy affiliate of a failed institution if the sister bank operated independently, a federal judge has ruled.
Striking down a key power the agency received in the 1989 thrift bailout law, Court of Federal Claims Judge Christine Cook Nettesheim said the statute's cross-guarantee provision violates the Fifth Amendment to the Constitution.
Under the 1989 Financial Institutions Reform', Recovery, and Enforcement Act, when a bank or thrift fails, the FDIC is is authorized to collect damages from commonly controlled institutions.
Did Not Contribute Judge Nettesheim ruled that the claim cannot be made against an institution that did not contribute to the failure.
In the decision, which lawyers received earlier this week, the judge acknowledged the need to protect the insurance fund.
"Nonetheless," she wrote, "Congress may not remedy the problems now confronting the federal banking system by placing the financial burden on the
