By Douglas Gillison and Chris Prentice
(Reuters) – The Federal Deposit Insurance Corporation (FDIC) is investigating potential misconduct by executives and board members of First Republic Bank (OTC:), raising the prospect of stiff penalties for the failed bank’s former bosses.
“We can confirm a D&O probe into First Republic is taking place,” a spokesperson told Reuters, referring to the bank’s directors and officers. The regulator did not provide further details.
The investigation, which has not previously been reported, is the third the FDIC has opened into bank failures earlier this year which cost the federal government’s deposit insurance fund about $32 billion.
FDIC Chairman Martin Gruenberg said in March that the agency was also probing possible misconduct related to the collapses of Silicon Valley Bank (SVB) and Signature Bank (OTC:) New York. The FDIC has not provided updates on these investigations.
The three banks, which combined held more than a half trillion dollars in assets, failed following depositor runs. Regulators have said they each exhibited weak risk management and ran high levels of uninsured deposits.
As with SVB and Signature Bank, the FDIC is probing whether First Republic executives and board members broke rules that require them to act in the bank’s best interests.
Under federal law, the FDIC can ban former directors and officers from the industry, and impose fines for breaching their fiduciary duty and unsafe or unsound practices that involve dishonesty or “willful or continuing disregard” for a bank’s wellbeing.
Former First Republic CEO and President Michael Roffler and former executive Chairman James Herbert could not immediately be reached for comment. Attorneys representing the bank’s independent board members did not immediately return a request for comment.
Roffler told lawmakers in May that regulators never expressed any concern about the bank’s strategy, liquidity or management and that it had been “contaminated overnight” by the depositor panic from SVB and Signature Bank.
It is standard practice for the FDIC to probe bank failures and not necessarily an indication of wrongdoing.