WICHITA, Kan.-The FDIC told a federal court here last week it should allow NCUA to extend the nominal statute of limitations on securities claims against several Wall Street banks that sold mortgage-backed securities to five failed corporate credit unions because the 1989 S&L bailout law allows for the extension.
"One of the tools Congress included in FIRREA is a provision that extends a statute of limitations that would otherwise have been applicable to causes of action of the failed institution," the FDIC asserted in an amicus brief filed with the U.S. District Court for the District of Kansas, where U.S. Central FCU, the one-time $52-billion central bank for credit unions was based.
Federal courts, argued the bank regulators, allow Extender Statutes in order to minimize losses to the FDIC's and NCUA's insurance funds by preserving to the greatest extent permissible by law claims of the FDIC or NCUA as receiver for failed insured financial institutions.
Under the Extender Statute, the FDIC has at least three years to file claims sounding in tort and six years to file breach-of-contract claims from the time a bank is closed, the FDIC noted.
The Banks Being Sued
Wall Street banks being sued by NCUA, including UBS Securities, Barclays Capital, Credit Suisse Securities, JP Morgan Chase and Bear Stearns (now a part of JP Morgan Chase) have told the court that NCUA waited too long under the three-year statute of limitations on securities claims to file suits on MBS sales that occurred as long ago as 2005. Most of the suit were not filed until mid-2011 or 2012.
The NCUA Argument
NCUA argues that the S&L Bailout law, formally known as the Financial Institutions Reform, Recovery and Enforcement Act, specifically allows financial regulators such as the FDIC and NCUA to extend the nominal statute of limitations until as long as three years after the date the agency has taken a failed bank or credit union under conservatorship. In the cases of U.S. Central and WesCorp FCU, the NCUA conservatorship began March 2009; and in the cases of Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU, it was September 2010.
The stakes are enormous for the banking and credit union regulators, which are trying to recover billions of dollars in funds spent to resolve failed banks and credit unions. NCUA expects to spend as much as $16 billion to resolve the five failed corporates.