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FIDATA TRUST CO. v. FDIC

July 14, 1993

FIDATA TRUST COMPANY OF NEW YORK f/k/a/ BRADFORD TRUST COMPANY,
v.
FEDERAL DEPOSIT INSURANCE CORP., Defendant.



The opinion of the court was delivered by: VINCENT L. BRODERICK

 VINCENT L. BRODERICK, U.S.D.J.

 I

 The defendant Federal Deposit Insurance Corporation ("FDIC") as receiver of the Franklin National Bank sold the fiduciary business of Franklin to Bradford Trust Company, which is now Fidata Trust Company of New York ("Fidata") and the plaintiff in this case.

 As part of the transaction, FDIC indemnified Fidata against "any and all claims . . . based directly or indirectly upon any action or inaction . . . as fiduciary . . . prior to the Bank Closing . . . arising directly or indirectly from the failure of the Assuming Bank to seek to recover any damages . . . or to take any other action to compensate for or remedy such action or inaction . . ."

 Paragraph 11 of the Indemnity Agreement provided that the agreement "and the rights and duties of the parties hereto shall not be assignable by either party hereto except with the prior consent of the other party incorporated in a duly authorized written instrument . . ."

 Fidata intends to transfer its fiduciary business to another entity and seeks summary judgment defining FDIC's obligations and determining that the indemnity agreement can be carried over to its assignee. I deny the motion on the grounds that FDIC's obligations under agreements submitted to me do not extend to indemnifying any assignee of Fidata. Fidata has failed to submit proof of its entitlement to a declaration or other relief.

 II

 Bank instability has been a significant and at times distressing problem since the foundation of the Republic. It is one of the primary duties of the central banking system in any country to sustain the solvency of financial institutions so as to provide stability necessary for the predictable conduct of business. This is also critical to the public welfare.

 Unlike many other countries, the United States lacked a central banking system for most of its existence until 1913 when the Federal Reserve Act was enacted; until then private institutions were relied upon to pick up the slack when they recognized it as in their enlightened self-interest to do so. See H. Satterlee, J. Pierpont Morgan ch XI at 277-308 (1939); Laws of the United States Relating to Currency, Finance and Banking From 1790 to 1896 (Dunbar ed 1897, reprinted 1969). *fn1"

 When a major banking crisis occurred in 1933, the Reconstruction Finance Corporation which was created (47 Stat 5 [1932]) upon the recommendation of President Herbert Hoover as a specialized segment of the central banking system, made loans or loan commitments to troubled banks, enabling them to reopen. See J. Jones & E. Angly, Fifty Billion Dollars (1951).

 The Federal Deposit Insurance Corporation was created thereafter in order to provide bank depositors with greater security for their money; it was not originally intended to replace the central banking system as the bulwark of liquidity and solvency. The Federal Reserve System performed that function in numerous instances until the massive bailouts of financial institutions of the 1980s. *fn2"

 The primary responsibility for supporting weak financial institutions was transferred for the first time during the 1980s to FDIC and similar agencies, funded not through the central banking system but by insurance charges to the banking industry, supported if necessary by tax monies. See Lescher & Mace, "Financing the Bailout of the Thrift Crisis," 46 Bus. Law No 2 at 507 (ABA Feb 1991). *fn3"

 One of the measures adopted by the FDIC and similar agencies to conserve their resources and to limit the duration of their function as receivers for insolvent banks was to seek to find buyers for the those banks. To that end agreements favorable to such buyers were frequently negotiated, ...


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