The Los Angeles Times has a piece out today about the phenomenon of "no press release" clauses that are a regular part of FDIC settlements with banks. Essentially, "the government cut[s] a deal with the bank's lawyers to keep [the settlement] quiet: a 'no press release' clause that required the FDIC never to mention the deal 'except in response to a specific inquiry.'"
The Times explains that "Since 2007, 471 U.S. banks have failed, nearly depleting the FDIC deposit-insurance fund with $92.5 billion in losses. Rather than sue, the agency has typically preferred to settle for a fraction of the losses while helping the banks avoid bad press." The settlements the Times explored cover a whole range of alleged banking violations, including "reckless loans to homeowners and builders; falsified documents; inflated appraisals; lender refusals to buy back bad loans." Furthermore, "At least 10 [of the] undisclosed settlements involved officers and directors accused of contributing to the collapse of their own banks."
These "no press release" clauses allow banks to avoid major hullabaloo following even multi-million dollar settlements with the FDIC. Theoretically, settling has benefits for both the FDIC and the banks in question: "Defendants benefit by settling because they can avoid admitting guilt and limit the damages they might face in court. The FDIC benefits by collecting money without the hassle and expense of litigation." But, as the Times points out, the phenomenon of "no press release" clauses is both an aberration from past policy and raises some serious concerns about the transparency of settlements and the effectiveness of government regulation of bank actions.
If the FDIC settles and other banks or industry insiders don't hear about, is there the same deterrent against wrong-doing? Does the settlement have the intended or desired impact to curb future violations? What right does the public have to know of these settlements? How will keeping these settlements quiet affect consumer protections going forward?
Given that "examining and supervising financial institutions for safety and soundness and consumer protection" is one of the three pillars of FDIC's mission and "accountability" is one of their six guiding values, these are questions worth answering. At the very least, the FDIC should prepare itself for some very specific inquiries, now that word is out about the nature of these settlements...