U.S. Judge Finds the FDIC Liable For Damages to MBank Affiliate

DALLAS - The Federal Deposit Insurance Corp. has been held liable for damages to MBank New Braunfels that arose from the 1989 seizure of the MCorp franchise.

U.S. District Judge Robert Porter late Wednesday ruled that the FDIC acted improperly in impounding $17 million owed to the healthy MBank New Braunfels, Tex., by a failed affiliate, MBank Dallas. The judge said he would hold hearings to determine what restitution the FDIC should be required to pay. The agency said it would contest the ruling.

Conforms to Earlier Ruling

The decision on MBank New Braunfels, which did not fail, dovetails with a February 1991 decision by Judge Porter that the FDIC had violated federal banking law by provoking the insolvencies of 12 more MBanks.

Dallas-based MCorp, which entered bankruptcy proceedings after 20 of its 25 banks were seized and sold to Banc One Corp., Columbus, Ohio, contends that it is owed up to $123 million in the case, which involves the 12 banks.

Transcripts of FDIC board meetings showed that the agency's strategy was to "grab" as many healthy MBanks as possible by curtailing repayments of loans from failed affiliates. The seized healthy institutions, when combined with failed counterparts, would enhance the sales value of the MCorp franchise, thereby reducing the cost of the federally aided rescue.

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