In a significant ruling, a federal judge has ordered Bank of America, the second-largest bank in the United States, to pay $540.3 million in a long-standing lawsuit brought by the Federal Deposit Insurance Corporation (FDIC). The case, which centers on allegations that the bank underpaid its deposit insurance obligations, marks a critical moment in the ongoing scrutiny of major financial institutions. This article explores the details of the lawsuit, its implications for Bank of America, and the broader context of banking regulations designed to safeguard the financial system.
Background of the FDIC Lawsuit
The FDIC filed the lawsuit against Bank of America in 2017, initially seeking $1.12 billion. The regulator accused the Charlotte, North Carolina-based bank of underreporting its risk exposure to counterparties, thereby reducing its contributions to the FDIC’s Deposit Insurance Fund. This fund, critical to protecting depositors, insures customer deposits up to $250,000 in the event of a bank failure. The FDIC alleged that Bank of America failed to comply with a 2011 rule, implemented in the wake of the 2008 financial crisis, which reformed how large banks calculate their deposit insurance assessments. According to the FDIC, Bank of America’s miscalculations allowed it to appear less risky than it was, resulting in underpayments averaging $77 million per quarter from 2011 to 2014.
The case,
FDIC v. Bank of America NA, was heard in the U.S. District Court for the District of Columbia. U.S. District Judge Loren AliKhan issued a 59-page decision on March 31, 2025, which was made public on April 14, 2025. The ruling ordered Bank of America to pay $540.3 million, covering assessments from the second quarter of 2013 through the end of 2014, plus interest. Notably, Judge AliKhan ruled that the FDIC’s claims for underpayments before mid-2013 were filed too late, reducing the total amount from the original $1.12 billion sought.
Key Arguments and the Court’s Ruling
Bank of America contested the FDIC’s claims, arguing that the 2011 rule lacked a reasonable basis and that the regulator acted arbitrarily. The bank also claimed it lacked fair notice of the rule’s requirements. However, Judge AliKhan rejected these arguments, stating that the FDIC was not obligated to create a “perfect measure” for predicting banks’ potential exposure to losses. She emphasized that the rule was part of broader reforms to ensure banking system stability and prevent another financial crisis. The judge also dismissed the bank’s assertion that the FDIC’s actions were capricious, affirming the regulator’s authority to enforce compliance.
Bank of America denied any intent to evade payments, and spokesperson Bill Halldin expressed satisfaction with the ruling, noting that the bank had set aside reserves to cover the penalty. The FDIC, for its part, declined to comment on the decision. The ruling comes at a time when regulatory agencies, including the FDIC, are undergoing significant changes, raising questions about the future of banking oversight.
Implications for Bank of America
The $540.3 million penalty, while substantial, is unlikely to significantly dent Bank of America’s financial position. As of June 2024, the bank reported $2.4 trillion in assets, making it a global systemically important bank. However, the lawsuit adds to a series of legal and regulatory challenges the bank has faced in recent years. For instance, in 2023, Bank of America agreed to pay $250 million to settle claims of illegal junk fees and unauthorized account openings, and in 2014, it paid a record-breaking $16.65 billion to resolve claims related to financial fraud leading up to the 2008 crisis. These incidents highlight the ongoing tension between large banks and regulators seeking to enforce consumer protections and financial stability.
Broader Context and Regulatory Landscape
The FDIC lawsuit underscores the importance of deposit insurance in maintaining public confidence in the banking system. The 2011 rule at the heart of the case was designed to ensure that banks accurately report their risk exposure, preventing underpayments that could weaken the Deposit Insurance Fund. The FDIC noted that Bank of America was the only one of nine major banks to miscalculate its exposure, highlighting the case’s significance in enforcing uniform compliance.
The ruling also arrives amid a shifting regulatory environment. With potential changes in federal oversight under new administrations, the FDIC and other agencies may face challenges in maintaining robust enforcement. The case serves as a reminder of the delicate balance between fostering innovation in the banking sector and ensuring accountability to protect consumers and the economy.
Conclusion
The $540.3 million judgment against Bank of America in the FDIC lawsuit is a landmark decision that reinforces the importance of regulatory compliance in the banking industry. While the bank has the resources to absorb the penalty, the case adds to its history of legal battles and underscores the FDIC’s role in safeguarding the financial system. As the banking sector navigates an evolving regulatory landscape, this ruling serves as a cautionary tale for institutions that fail to adhere to federal rules designed to prevent systemic risks.