Bank Lawyer's Blog

FDIC Absolutely Open For De Novo Business

In the article I discussed a couple of days ago, which was a report on public statements by FDIC supervisory personnel on issues of concern to banks of all sizes, one of the other topics that the FDIC discussed was de novo banks. Readers of this blog know that it's a topic that was near and dear to my heart from the days when The Care Bair first imposed a moratorium on FDIC insurance for new industrial bank charters.

Here's what Doreen Eberley, the FDIC's director of risk management supervision, had to say on the subject of new bank charters.

• De novo banks coming back? With one fairly recent exception, bank startups have been nil in recent years.

“We are absolutely open for business,” said Eberley, in terms of being willing to entertain new applications for deposit insurance. “There hasn’t been a lot of business, though, that we’ve heard about.” (FDIC grants deposit insurance coverage, but chartering is handled by state regulators and, for national banks, the Comptroller of the Currency.)

Eberley suggested that capital that might have gone to startups went into existing banks during the crisis and the post-crisis cleanup. She said that $40 billion in new capital came into banks under $1 billion—excepting some specialized institutions—between 2008 and 2012. It was simply cheaper for investors to buy into existing banks than to start from scratch. However, she suggested that as many community bank share prices are rising, de novo banking may appear attractive once more.

She also noted that most consolidation of community banks has involved mergers and acquisitions with other community banks.

The above is bureau-speak for "we are discouraging de novo bank charters, but refuse to admit it publicly." There have been only a very few de novo charter FDIC insurance applications approved since the economy tanked. As one state banking chief told me several years ago, the FDIC says that there are too many banks in this country, it's in the business of reducing the total number, and it's certainly not consistent with that plan to approve applications for insurance of accounts to new banks. That's what regulators tell one another over a couple of cool mugs of brew, but that's not anything any of them will cop to publicly. In fact, they'll deny it, if pressed.

The reason that "most consolidation of community banks has involved mergers and acquisitions with other community banks" is because of another worm hole in the FDIC time-space continuum: a distaste for private equity. Good luck assembling a group of private investors who look upon the investment in a community bank, or a group of community banks, as a great investment "play." Sure, a number of those groups grabbed some failed banks from the FDIC during the post-crash wave of bank failures, but the FDIC soured on private equity players and their nasty desire to make a return on their investment. If you exclude private equity players from the buying group, then, of course, what's left are other banks.

This is not to say that you cannot get a de novo bank started, nor that a group of investors who are interested in investing in community banks purely as a private equity investment "play" are never going to be able to obtain regulatory approval. It does mean, however, that it's going to be tough to accomplish, and the instances where they are approved are going much more rare than they used to be before the crash of 2008. Even those few that make it the finish line are going to take a lot more time, involve a lot more paperwork, and require a lot more expense than they did "in the good old days." The odds are , you'll be spending all that time and money and still die somewhere short of the home stretch.

Cashing Out on BankUnited

The recent news that the original private equity funds that backed one of the FDIC-assisted broke-back-bank deals of the latest banking "crisis" are finally, after five years, cashing out the last of their remaining ownership may fill the FDIC with even more "seller's remorse" than it allegedly experienced previously when it decided that it had been way too generous with the buyers of BankUnited. As I discussed four years ago, some wags complained that the assistance deal was too lucrative for the acquirers, due, the wags surmised, because the crafty Wilbur Ross and his fellow PE all-stars "outfoxed" their FDIC counterparts.

I don't think that the FDIC was "outfoxed." Rather, Ross and his compatriots (led on the management side by John Kanas, who will remain at the helm of the the bank after the original investors leave the stage) were into the game early, when the risks were high, the rules flexible, and the FDIC uncertain as to where the sweet spot might be between giving away just enough to entice buyers to buy, but not so much that critics in the peanut gallery would do what the FDIC does to officers and directors of the failed banks: second-guess them with the benefit of hindsight. As a result, Ross and his fellow investors negotiated better terms than those who came later. As the FDIC became more comfortable with its understanding of the field of potential bidders and what they would or would not accept, the deal terms negotiated became less lucrative for the acquirers.

An unfortunate consequence of this criticism of the FDIC, as well as of public bragging by some notable PE investors who also got into the game at the beginning (not Ross) about the sweet deals they'd swung, was that the FDIC decided to clamp down on private equity bidders for failed banks, making the conditions on PE bidders onerous enough that Ross and others simply opted out of the process and turned their attention to other investments. That eliminated competition for other assisted transactions and may have ended up costing the FDIC money in the long run. That's pure speculation, but not unreasonable speculation.

There will be some who will sneer at the fact that Ross and company are making more from the deal than they originally expected. As I said four years ago,

Of course, we appear to be living in an era where a number of people think it ought to be illegal for capitalists to prosper, especially in the banking system, and even more especially where the downside risk is covered by the FDIC. I understand the reasons for that sentiment. I simply don't share it.

I still don't share it. Risk takers recapitalized a broken bank, turned it from a high-flying outlier into a solid franchise, saved the jobs of many workers who otherwise would have been hitting the pavement, and performed in accordance with the deal they cut with the government. The FDIC experienced a substantially lower loss than it would have if it had not done the deal. The investors made out well. So, let's all criticize both parties for not doing a deal that wouldn't have been done at the time it was done. That makes sense.

My only regret is that the FDIC didn't do more BankUnited-like deals. Then again, as I've said before on this blog, I sustain myself not by eating solid food, but by taking a straw and sucking the sweat from the brow of the proletariat. Of course I'd feel that way.

Let's Be Reasonable

Attorney Ari Karin has pondered the implications of recent enforcement action by the federal government against large loan servicers, and he's drawn some interesting conclusions. Writing an opinion piece in National Mortgage News, he makes an observation that will ring true with many community bank officers and directors.

Practically, these actions suggest that as opposed to specific standards that must be met, a generalized standard of care is being developed. In other words, up to this point lenders had specific actions and goals that were required. A lender could compare its actions and performance to specific standards to determine its level of compliance.

It appears that we are witnessing the development of a generalized "reasonableness" threshold where lenders will now need to evaluate themselves based upon the processes and procedures of their competition. This obviously creates additional pressures on companies' compliance infrastructures because simply meeting minimum statutory requirements may not be sufficient in the future.

Rather, the more surrounding companies implement practices to protect consumers and avoid defaults and other problems, it could impose liability for companies lagging behind their competition. In that regard, meeting minimum statutory requirements would not be enough—lenders would need to measure themselves against their competition in regards to their compliance performance and review their own conduct from a generalized reasonableness perspective.

Put another way, a lender's compliance would essentially be viewed in hindsight, creating the need to predict possible outcomes and review them in advance to determine that their actions are generally reasonable at the time.

Reasonableness is in the eye of the beholder. When that eye is a jaundiced one, lodged in the skull of a bank regulator, what a lender might regard as "reasonable" is likely to be a world away from what the regulator views as "reasonable." Moreover, Karin's observation that judgments as to "reasonableness" will be made with the benefit of hindsight is chilling, if the judgments made with respect to many officers and directors of failed community banks constitute a taste of what lenders and servicers, bank and non-bank, provide a road map.

Looking at the most recent FDIC lawsuit against former officers and directors of a failed bank, we see that the defendants are typical of a class of unlucky former officers and directors who made commercial real estate loans, especially acquisition and development loans, during the years leading up to the Great Recession: the CEO; the senior executive officer in charge of commercial lending; and two directors who served on the bank's loan committee.

The lawsuit alleges the four recommended and/or approved commercial real estate loans and loans for land acquisition, development and construction that violated “prudent, safe and sound lending practices” and Bradford Bank’s own loan policy. Marsiglia and Mitchell served on the bank’s loan committee.

The lawsuit alleges that in seven loans from July 2006 to October 2007, borrowers were approved for loans they did not have the capacity to repay or were for amounts too high given the value of the underlying real estate. Some borrowers were approved for “speculative” land acquisition, development and construction loans “despite the known economic downturn at the time of loan approval,” the lawsuit said.

"Despite the known economic downturn at the time of loan approval." "Known" with hindsight, of course. At the time the decisions were made, they appeared to the people who made them as "reasonable." Now, we know better, don't we?

Moreover, as the former head of the FDIC during much of this mess, The Care Bair, admitted publicly, even demi-gods residing on the slopes of Mount Olympus failed to anticipate the length or depth of the downturn. Yet, with hindsight, the defendants were negligent and breached their fiduciary duties because their decisions were not "reasonable" in anticipating what "none of us saw coming."

Big loan servicers, welcome to our world. It's located on the far side of the looking glass.

As a side note: any director who decides to serve on a bank's loan committee needs to receive combat pay, a psychiatric examination, or both.

HUD Defends The Middle Ground

HUD, which took a proactive stance on the controversial doctrine of "disparate impact," issuing regulations that codified the criticized doctrine in order to attempt to require the federal courts that construe it to give HUD's interpretation judicial deference, has decided that when it comes to the equally controversial scheme of a number of municipalities to "condemn" underwater residential mortgage loans, HUD must remain "neutral."

Housing and Urban Development Secretary Shaun Donovan kept his carefully neutral stance this week on the potential use of eminent domain to restructure underwater mortgages.

Mortgage and housing industry groups have asked HUD to rule that Federal Housing Administration-insured loans will not be used to refinance mortgages on properties that are condemned and seized by local government under eminent domain.

But Donovan said that the use of eminent domain to force the sale of private-label mortgages out of securitized trusts must be decided by the courts.

There are very specific rules about the use of eminent domain, Donovan said at a Politico event Wednesday, and “it needs to be decided by the courts.”

The application of the doctrine of disparate impact to fair lending laws must also be decided by the courts. That fact hasn't stopped HUD from issuing regulations on the subject. The least the agency could do is to take a stand on the potentially detrimental impact on the residential mortgage lending business, including FHA mortgages, caused by the use of eminent domain to sieze mortgage loans from lenders. The FHFA has weighed in to protect its interests, which happen to be aligned with the lenders from who FNMA and FHLMC buy loans. Why can't HUD?

Perhaps the fact that the expansion of the conflating the disparate impact doctrine into the fair lending arena and a creating a crackpot scheme like condemning mortgage loans are both anti-lender, pro-populist theories dreamed up by Leftist activists might have something to do with it. In HUD's case, as in the FHFA's, hurting lenders harms the agency, so the laws of self-interest would seem to dictate that HUD oppose both of them. Ultimately, however, the losses of HUD are back-stopped by the US taxpayer, and as we all know, neither side of the political spectrum has been overly concerned with taxpayers when it comes to serving a "higher cause."

The Tough Sledding Will Get Tougher

When H. Rodgin Cohen speaks, bankers listen. At least, they ought to listen if they want to learn something.

Bank Lawyer's Blog favorite Cohen gave a speech last week in New York City in which he dropped a few pearls of wisdom concerning why he thinks an already tough regulatory environment for banks is going to only get tougher. Among the reasons are the following:

• "The lingering public perception that banks got off too easy after the financial crisis could color regulators' mindsets." Cohen thinks that regulators will be especially tough on anti-money laundering and consumer law violations. He also believes that federal regulators may be motivated to pursue criminal penalties because of the perception among bankers that since recent criminal penalty settlements have not resulted in any individual bankers serving jail time, the risks of pleading guilty to crimes has somehow lessened. On the other hand, the long-time banking attorney thinks that banks have no one to blame but themselves for continuing to violate laws that they should, by now, know how to comply with.
• New OCC risk management standards for board members will provide a basis for new enforcement actions. In this area, Cohen thinks the regulators are being unrealistic. "I do worry that there is a point at which boards just cannot perform all of these tasks. You can only do so if you are prepared to have directors who really have no other significant occupation. … The cost would be to lose an incredible inventory of valuable directors." Amen, Brother Cohen!
• A recent FRB proposal that attempts to assert increased US control over foreign banks could hurt the US economy, Cohen worries. It also might have "an adverse impact on international trade and effective resolution."
• Too big to fail bank resolution procedures continue to be a preoccupation of the regulators and will continue to motivate regulatory actions. Cohen does think that effective too big to fail processes are "within reach" if the will exists to enact them. I consider Mr. Cohen to be an optimist on that issue, but he's smarter and closer to the throb of the power center in D.C. than I am, so I'll defer to his judgment.

Speaking of optimists, Cohen's partner, Michael Wiseman, gave an upbeat view about what all this increased regulatory pressure means for lawyers.

"It is an intellectually fascinating time to be a banking lawyer," he said. "When I started out, it was a relatively boring job."

"Intellectual fascination" will be (correctly) interpreted by banking clients to mean "higher legal fees." That's the silver lining that bankers always have a hard time seeing.

Is There Something Wrong With Aunt Fannie?

While the US Department of Justice is busy trying to squeeze perfectly legitimate businesses out of business, and working feverishly to avoid enforcing federal drug laws in order to accommodate the voters of a swing state, it appears to be mysteriously absent from recent allegations that Fannie Mae may have more than one rotten apple in its bottomless barrel.

A metro Denver real estate broker has sued the Federal National Mortgage Association (Fannie Mae), claiming that her contract work with the federally-sponsored company dried up after she tried to report fraud.

In her federal complaint, Karen Frisone alleges that the fraud involved kickbacks, attempted bribes and a fake office scheme by other Denver brokers.

Frisone, at one time a top broker of FNMA REO properties in Denver, claims that a Fannie Mae official tried to solicit a bribe from her and when she not only didn't play ball, but reported that another brokerage was getting more than its fair share of listings due, she alleged, to fraud, Fannie Mae terminated her contract. Litigation has ensued, and Aunt Fannie has issued the typical response: Frisone's claims are "without merit."

I suppose that response might have more of an impact if it weren't for the fact that Frisone is not the only one singing the same sad song about how they've got The Fannie Mae Fraudster Blues.

The case mirrors a case in Irvine, Calif., where a former employee of Fannie Mae was indicted in 2013 on charges that he solicited illegal payments from a broker, as reported by the Los Angeles Times. That office’s supervisor was fired in June.

The nefarious doings in Tinsel Town may be an isolated case. Frisone's allegations may be unsupported. Fannie Mae may be as pure as the driven snow.

Pigs may fly.

Whether or not the allegations ultimately turn out to have a basis, you would hope that the DOJ would be in the thick of an investigation as to whether or not Frisone's allegations are true. After all, Fannie Mae, and its red-haired step-cousin twice removed, Freddie Mac, are wards of the state, having been in conservatorship since before The One became The One. If there are kickbacks and bribes being paid, that would speak ill of the ability of the Feds to manage their affairs. I know, that's a harsh allegation, but there you have it.

Let's hope AG Holder can resist his illicit love for disparate impact and his gut-wrenching aversion to payday lending long enough to cast a piercing glance at Fannie Mae's minions in the Mile High City before they're covered in a thick haze of (perfectly legal) cannabis smoke. If there's something wicked there, it might be nice to actually stop it before it spreads to a Red State, where sober people might be harmed.

The Long-Range Consequences Of Adopting The Mating Habits Of A Praying Mantis

The Boston Business Journal's Matthew L. Brown articulated the thoughts of many banking executives and attorneys when the news broke last week that JPMorgan Chase had agreed to pay the US Government a whopping $13 billion to settle claims arising, principally, if not exclusively, out of the steaming heap of goat custard that lay beneath the surface of Wamu and Bear Stearns. Chase bought those gems at the behest of the US Government in 2008 as part of the efforts of the governemt to prevent a meltdown of the US economy over the subprime mortgage securitization crisis and its consequences. As we discussed a few years ago, in the case of Wamu, Chase and the FDIC have been locked in mortal combat over whether the less-than-clear acquisition agreement and related documents required Chase to assume the liabilities related to that custard or whether it stayed with the FDIC as receiver for the Wamu. That battle continues and may be impeding the finalization of settlement documents.

Brown's point is more general and far-reaching. He claims that by asking Chase to step in and rescue the government from the consequences of those two entities going down in flames, and then beating Chase about the head and shoulders with a hockey stick for sins committed by those two entities prior to Chase's purchase of them, the government is jeopardizing the chances that any major players will ever step into the breach again in such a fashion, at least without a lot of belt-and-suspenders language i the acquisition documents that makes it perfectly clear, particularly to a federal court, exactly what liabilities are being assumed and what liabilities are not.

However, Brown argues that going after Chase for the liabilities of Bearn Stearns and Wamu is also egregious because of the respective responsibility of the two combatants in this aftermath--Chase and the US Government--for the losses.

Big banks’ mortgage securitization and credit derivatives practices in the years before the collapse were reckless, self-serving and parasitic. We’ve also learned — from books like Charles Morris’ "The Trillion Dollar Melt Down," published in March 2008 — that they were decipherable and predictable.

Regulators didn’t bother to decipher or predict the meltdown. And in the case of Bear Stearns and WaMu, they didn’t seem to do much regulating, either.

A $13 billion settlement will only sting JPMorgan Chase a bit. The more fervent feelings appear to be on the government’s side as it hustles for little bits of cash to cover for its own ineptitude.

"Hustles for little bits of cash." He's right, of course. Compared to the total amount of money and asset value lost by the perfect storm of stupidity, incompetence, greed, and venality by so many players in the game, including the executive and legislative branches of the US government, $13.1 billion is a pittance. Still, it's a lot of money to most bankers, and Brown's parting shot sounds prophetic: "It’ll be a long time, indeed, before a big bank answers the federal help line."

Hating A Hate Crime Torpedoes A Bank Bailout

Recently, a too-small-to-save community bank in Bridgeport, Connecticut failed. So far, so what? If it's not run by the likes of Jamie Dimon, you know it's not going to get a bailout. In fact, the bank had been denied TARP capital. What's an interesting wrinkle in this sob story is that the bank. the state's only minority-owned bank, had lined up a White Knight, one Donald J. Vaccaro, who had the cash to buy and recapitalize the bank and was raring to go. Unfortunately for him, the state and federal banking regulators determined that he just couldn't pass the "integrity test."

Did he machine-gun a busload of nuns? Strafe an orphanage? Break wind in the vicinity of an open flame? No, something much worse: he was arrested (but never convicted) of a "hate crime." The "crime" was uttering a racial epithet.

State and federal regulators got stuck on Vaccaro's arrest, which happened in 2012 at an Oscar party in Hartford, on the felony charge and four misdemeanors. He allegedly was bounced out of Real Art Ways when he allegedly grabbed one woman's breasts. He later allegedly told the bouncer, "You never should have touched me, you black mother-[expletive]," according to police.

Vaccaro has consistently denied that he touched anyone or used any racial slurs.

He was granted accelerated rehabilitation by the courts, a special form of probation that would erase the record of the arrest if probation is successfully completed. The probation period has been shortened once, and is now set to end in February.

Let's leave aside the First Amendment implications of the entire concept of "hate crimes." There's no sense in opening up that can of worms. If Vaccaro in fact uttered such a racial slur, it certainly would not make him the preferred provider to capital to Connecticut's only minority-owned bank, would it? Yet, here was the bank's founder seeking his capital. Not only that, the NAACP publicly gave Vaccaro a clean bill of health reputation-wise and supported his proposed acquisition of the bank. In light of that, you'd think that the regulators' fears of "reputational risk" (cited by the state banking authorities) would be assuaged. If he'd insulted Norwegians ("You never should have touched me, you pasty-faced mother-[expletive]," of course, then I doubt he could have effectively marshaled a respected Scandinavian-American advocacy group to come to his aid. But in this case, the premier advocacy organization for the minority group he'd allegedly insulted told the world that the guy was not a "hater."

In addition, it seems to me that the accelerated probation is indicative of the fact that the local authorities did not consider him a serious offender. Once probation was completed, which was to be in less than six months, the crime would be expunged from the record. It would have been as if it had never happened. So, doesn't it seem a tad unfair to base your decision primarily on an arrest for a crime that will, shortly, have never existed? I realize that bank regulators regularly time travel through worm holes, so everything that has ever happened or will happen is, for them, occurring right now, but still...

The bank's founder and CEO, Peter Hurst, put it poignantly.

"It was one bad night in February 2012," Hurst said. "Should that be enough to let a bank fail? I just don't get it. I don't think I ever will."

In the interest of fairness (which is seldom a concern on this blog), the linked story discusses the Federal Reserve Board's "stinging" letter of rejection of Vaccaro's application, delivered after the bank failed, which cites other "unexplained" past arrests of Vaccaro and investigations of Vaccaro-related enterprises. None of those incidents appeared to present hurdles that could have not been leaped, however. In addition, the state banking commissioner's comments make clear that the primary factor in the rejection of Vaccaro's application was the hate crime arrest.

To cut the chase, the regulators didn't think that Vaccaro was their kind of guy. Which, in a sane world, might be a reason to praise Vaccaro, not to bury him.

More Pertinent Than The Three Rs

In a recent article in the ABA Banking Journal, attorney Harold P. Reichwald advises directors who are serious about responding to the banking regulators' emphasis on enterprise-wide risk management to pay attention to what he calls "the five C’s of board governance:  Competency, Collegiality, Confidentiality, Communication, and Culture."

As Howard warns, these aren't the only principles of board governance with which directors should be concerned. On the other hand, "they are a set of principles that must be present, lest the bank inevitability suffer unanticipated losses." And if the bank suffers unanticipated losses that are serious, the directors may anticipate that the bank's primary regulators will take note and may even sanction the bank, and the directors, for such losses. If the bank fails, the FDIC may eventually come calling, and it won't be to have friendly chat.

Although all five points are worth noting, one struck home with me in light of what I, and colleagues with whom I work, have learned from our representation of management and boards of failed banks. That point is the second C, Collegiality.

Here's what Howard has to say about that.

Collegiality stresses the importance of trust among the board members and the encouragement of board members to voice their opinions fully, including expressions of differing points of view.

It encourages respect for all views expressed by individual directors and discourages attempts at private decision-making or influencing management away from the boardroom.

It demands that the board be seen as acting with one voice in making decisions—even when there are dissenting views expressed in deliberations prior to a vote.

Those of us who have been around the banking business through many business cycles have seen the negative consequences that can result when dissent at the board level is suppressed. There is nothing more detrimental to the health of a community bank (and to the health of its directors' pocketbooks) than a "strong" majority shareholder/director or board Chair who runs meetings like a religious revival, with only one preacher preaching and the rest of the attendees screaming "Amen!" I've talked about the dangers of this personality type in previous posts.

I understand Howard's point about the Board "speaking with one voice" even when there is dissent. However, it is also important that legitimate dissent (as opposed to the never-ending nay-saying of a professional gadfly who could stand in the middle of the Gobi dessert at high noon and argue that he's in Antarctica at midnight) be reflected in the board minutes, as well as the response to that dissent, and also an articulation of the reasons why a majority of the board decided to vote contrary to the opinion of the dissenter (if that is the board's decision). The board should be able to show that it considered the pertinent information and issues, pro and con, and made its decision in a disinterested manner after due deliberation. The goal of this process is to satisfy the requirements of the business judgment rule, not necessarily to prove that the decision was "right" in hindsight. As one federal district judge noted in ruling in favor of directors of a failed bank, the business judgment rule protects directors even when they might be inept.

Therefore, "collegiality" as proposed by Howard is an attitude that fosters respect for the opinions of all borad members so that they feel free to voice contrary views. It does not mean that everyone "goes along to get along." 

2013: The Year of The Lawsuit

Not long ago, The Washington Post ran an article that discussed how the FDIC has filed "a flurry of lawsuits" against officers and directors of failed banks. The recent "flurry" is due to the fact that the three-year statute of limitations is running out on banks that failed in 2010, a "banner year" for bank failures. Obviously, the FDIC doesn't want to let that limit expire without preserving its right to squeeze some blood out of the turnips.

As The Post points out, filing the lawsuit is not the end of the game. The cases can drag on for years.

There have been repeated delays as defendants seek to have cases thrown out and argue that their bank was the victim of a bad economy — not negligence.

[...]

“We generally don’t have people come in saying, ‘We’re really sorry we caused the bank to fail, here’s a check,’ ” said Richard Osterman Jr., acting general counsel at the FDIC. “We have to investigate, uncover information, subpoena records, do depositions and often file actions.”

Osterman was the head of the "bad bank" side of the FDIC prior to becoming acting general counsel, so his wry observation is spot on.

Alston & Bird's Mary Gill also states an obvious truth about litigation of all types.

“Federal litigation is inherently a slow process,” said Mary Gill, a partner at Alston & Bird, who specializes in director and officer, or D&O, litigation. “There have been discovery disputes that have arisen in many of the cases, which has somewhat slowed the pace of the litigation.”

And we can't forget the unstated truth that when attorneys bill by the hour, many hours must be spent. I believe that's a law of nature.

As the article also observes, the longer these cases drag on, the lower the FDIC's ultimate recovery may be. That's due to the fact that the D&O insurance policies (in most cases, the major "fund" out of which FDIC recoveries will be paid) cover litigation costs and litigation costs are applied against the policy limit. While the personal assets of the defendants can theoretically be tapped, in reality many of those defendants don't have the net worth to pony up much, or the net worth they have is ensconced in exempt assets. 

A couple of knowledgeable attorneys, Chris Cole and David Baris, are correctly quoted as observing that (1) unlike the S&L meltdown of the 1980s, there's less blatant fraud this time around the horn and a much better basis for arguing the the officers, and certainly the outside directors, could not have anticipated the steamroller that started flattening the economy in 2008; and (2) the practice of many of many community banks of having directors sit on the bank's loan committee and approve commercial loans is going the way of the passenger pigeon. Also, although Osterman correctly states that the fact that bank examiners did not criticize (and often praised) directors and officers credit practices that are not being severely criticized (in hindsight) by the FDIC, does not give the directors an automatic pass on a negligence or breach of fiduciary duty claim, it is a hurdle for the FDIC to jump.

Nowhere in the article is there any discussion that the overwhelming majority of the officers and directors being sued served community banks. The big boys were bailed out. The little guys were too small to save. But, apparently, not too small to second-guess and to sue.