Litigation Services Handbook, 2014 Cumulative Supplement: The Role of the Financial Expert, 5th Edition

CHAPTER 35B

RECENT BANK FAILURES AND THE FORENSIC ACCOUNTANT'S ROLE

David P. HoffmanW. Scott SorrelsYvonne M. Williams-Wass

CONTENTS

35B.1 Bank Failures and Related Litigation in the Current Economic Crisis

35B.2 The Life Cycle of Professional Liability Litigation: From Prefailure through Litigation

(a) Prefailure

(b) From Closing through the Prelitigation Period

(c) Litigation and the Standard of Liability

35B.3 Considerations for Accountants

(a) Identification of the Client and the Structure of the Engagement

(b) Prefailure Investigations

(c) Assistance with Insurance Claims

(d) Litigation Assistance

NOTES

35B.1 BANK FAILURES AND RELATED LITIGATION IN THE CURRENT ECONOMIC CRISIS

The financial crisis that began in early 2008 made a devastating impact on the nation's financial institutions, particularly on community banks with smaller assets and portfolios that were vulnerable to the toxic market conditions. By late 2012, however, the once frantic pace of bank failures showed signs of slowing, and the number of banks in troubled conditions also appeared to begin stabilizing. The Federal Deposit Insurance Corporation (FDIC) announced that the number of banks on its “problem list” fell from 772 to 732 in the second quarter of 2012, the smallest number of “problem banks” since year-end 2009.¹ However, 732 represents numerous problem banks, and as the economy continues to struggle into 2014, additional bank failures and other regulatory actions are likely to occur.

In its wake, ...