A provision in regulatory relief legislation would give insolvent national banks just 30 days to protest the appointment of a receiver, versus six years under current law.

The proposed change was requested by the Office of the Comptroller of the Currency and tucked into the wide-ranging regulatory relief bill introduced July 31 in the House. A piggyback provision favored by the Federal Deposit Insurance Corp. would establish an identical 30-day limit for state-chartered banks.

OCC lawyers said the change would prevent banks from disturbing the resolution process with frivolous lawsuits. "What's really unfair is, we put a bank in receivership, we're selling the assets of the bank, we're paying off the FDIC, other creditors, debtors, and depositors, and then two, three, four, five, or six years later they challenge the receivership," one OCC source said. "That's ridiculous."

"You can't put (the bank) back together" years later, said an FDIC staff attorney. "It's like Humpty-Dumpty."

Under current law, thrift owners are already subject to the 30-day deadline.

Regulators also argue that by reducing the legal window from six years to 30 days, bidders might pay more for failed-bank assets. "If you're worried about litigation affecting title, you may bid less - or not at all - for an asset," the OCC source added.

The impetus for the change was a lawsuit filed by the owner of Madison National Ltd., a three-bank holding company in McLean, Va.

In 1996 the U.S. Court of Appeals for the District of Columbia Circuit upheld a lower court ruling that the OCC had acted properly in closing two of Madison National's banks in 1991. The appeals court also confirmed the existence of a six-year statute of limitations on such lawsuits for national banks and for state banks in which the state regulator appoints the FDIC receiver.

"The OCC had historically taken the position that their decision to close a bank was unreviewable, and actually the courts had supported that position for years," the FDIC attorney said. "Until Madison, there never had been any question about it."

Few national bank owners contest the appointment of a receiver. An OCC attorney estimated that over the past 10 years, only five to 10 such challenges have been filed. And in most cases, the banks did so within 30 days anyway.

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