- The judge ruled that actions seeking to restrain the FDIC are barred, dismissing the lawsuit.
- First Republic Bank’s collapse on May 1, 2023, marked the largest US bank failure since the 2008 financial crisis.
A federal judge in California has dismissed a lawsuit brought by nearly 170 former employees of the failed First Republic Bank. The employees accused the Federal Deposit Insurance Corp (FDIC) of improperly blocking their access to at least $150 million in retirement funds, Reuters reported.
The lawsuit, dismissed by US District Judge Haywood Gilliam on Friday, claimed the FDIC improperly restricted the former employees’ access to their retirement funds after the collapse of First Republic Bank. However, Judge Gilliam cited a federal law from the 1980s, established after the savings and loan crisis, that grants the FDIC broad authority as a receiver for failed banks, effectively preventing judicial intervention in such matters.
The law referenced by Judge Gilliam allows the FDIC significant leeway in handling the receivership duties of failed banks. This law forecloses actions which seek to ‘”restrain or affect'” the FDIC in fulfilling its receivership duties,” Gilliam stated. Interestingly, the dismissal was with prejudice, meaning the lawsuit cannot be brought again.
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Impact Of First Republic’s Collapse
First Republic Bank, which catered to wealthy customers and had $229 billion in assets, failed on May 1, 2023. The collapse was the largest US bank failure since the 2008 financial crisis, triggered by a series of Federal Reserve interest rate increases that caused significant losses in the bank’s investment portfolio and prompted depositors to withdraw their funds.
Lawyers representing the former First Republic employees did not immediately respond to requests for comment. Similarly, an FDIC spokesman declined to comment on the ruling. The case highlights the tension between federal regulatory authority and the rights of individuals affected by bank failures.
First Republic’s failure occurred less than two months after Silicon Valley Bank and Signature Bank’s collapses, marking a turbulent period for the US banking sector. Despite the high-profile nature of these failures, JPMorgan was not involved in this particular case.
