FDIC Will Allow Public to Attend Insurance Termination Hearings

DALLAS -- In a move that could hasten the collapse of weak banks, the Federal Deposit Insurance Corp. has decided to open its deposit insurance termination hearings to the public.

The policy shift came to light Wednesday when the agency held open hearings in the U.S. District Courthouse here to review insurance coverage of First State Bank of Marlin. The troubled Texas bank, with $46 million in assets, is owned by United Bankers Inc., Waco, Tex.

David Barr, an FDIC spokesman, said the agency's lawyers determined the public hearings were required under an open-meetings provision of the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990.

The agency rarely ends up terminating deposit insurance. Only one of the 52 hearings held by the FDIC in 1990 prompted a termination of insurance, Mr. Barr said. Even when termination is the result, existing depositors' accounts are covered for two years after the date of suspension.

But experts said that publicizing the hearings would harm target banks regardless of the eventual decision on deposit coverage.

"Headlines saying the FDIC is going after a bank's deposit insurance could run off depositors and compromise the goodwill an institution has assembled over the years," said James Sexton, a consultant in the Austin, Tex., law offices of Bracewell & Patterson.

Scheduled this fall are deposit-cancellation hearings for Gladewater National Bank and First National Bank of Dayton, both in Texas.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.