One of Silverton Bank’s line of business was making loans to bank directors secured by stock in the borrower’s bank or bank holding company. Upon the failure of Silverton the directors were informed that the FDIC did not have a then current intent to sell those loans as it was doing with all of the other assets held by Silverton.

Recently the contractor hired by the FDIC to manage those loans has indicated that there has been a change in plans and plans are being put in place to sell the loans through a DebtX auction. Many directors have concluded that it would be in their best financial interest to try and negotiate a discount on the loan prior to its being sold to a third party. While this may make short term financial sense, there is an issue lurking in the shadows that many directors are not aware of.

A senior FDIC official recently informed a group of bankers that the supervisory side of the FDIC would look disapprovingly on any directors who discounted their director loan with Silverton on the basis that to do so caused the FDIC insurance fund to suffer a loss. While it is difficult to predict how firmly the position may be held by the FDIC, the longer term consequences may be significant if that director seeks to become involved with another bank in the future. Thus, any director, particularly management directors, should carefully weigh all of their options and seek capable legal advice before seeking to discount their loan.

There may be strategies to minimize risk to the director but those require a case by case analysis of the facts and circumstances surrounding the loan. Please contact Jerry Blanchard (404.572.6804) or your regular Bryan Cave contact if you would like to discuss these strategies.