Report on Broadway Bank

Yesterday, the FDIC’s Inspector General reported to Congress that the “delays in processing the examination and issuing the enforcement action” against Broadway Bank resulted in part “from the complexity and condition of Broadway.” This is a reminder that we will learn more about the “complexity and condition of Broadway” when the Inspector General reports back in October.

Under Section 38(k) of the Federal Deposit Insurance Act, if the Deposit Insurance Fund incurs a “material loss” due to the failure of Broadway Bank, the Inspector General of the FDIC must launch an investigation to ascertain why the institution failed and recommend ways to avoid such losses in the future. A loss is considered “material” if it exceeds the greater of $25 million or 2 percent of an institution’s total assets at the time the FDIC was appointed receiver. Under the Act, the Inspector General must publish the report within six months.

On April 23, 2010, the FDIC announced that Broadway Bank’s collapsed had cost the Deposit Insurance Fund $394 million. By definition, this constitutes a “material loss” and must immediately prompt an Inspector General report. By statute, the report on Broadway Bank is due by October 23, 2010 – six months after the FDIC’s announcement of a material loss.