US District Judge Loren AliKhan ordered Bank of America to pay the Federal Deposit Insurance Company (FDIC) $540m over charges that it underpaid the agency what it owed for deposit insurance under a 2011 rule that required banks to aggregate closely related counterparty risk. The decision, issued on March 31, was unsealed earlier this week.

The FDIC demanded $2.1 billion from Bank of America in an amended 2017 lawsuit, claiming that the bank understated its counterparty risk by individually reporting to the FDIC its exposures to entities that were affiliated under a parent company, rather than consolidating them as required by a 2011 rule.

By failing to consolidate the exposure figures, Bank of America avoided higher premiums that would have accounted for significantly concentrated risk created by counterparty exposures that were economically interdependent.

That allowed Bank of America to dodge over $1.12 billion in deposit insurance assessments between 2011 and 2014 and unjustly enrich itself another $1 billion, the FDIC argued, seeking the latter sum as disgorgement.

$540m penalty

Judge AliKhan rejected Bank of America’s primary arguments that the rule’s plain text was unclear or that the FDIC exceeded its statutory authority.

The FDIC sought liability for conduct that dated back to 2011 and 2012, but those claims were barred by a three-year statutory limitation. That circumscribed the scope of possible penalties to Bank of America’s conduct from Q2 2013 through the end of 2014.

Ultimately, Judge AliKhan awarded the FDIC $540m, the initial sum it requested from Bank of America before its 2017 complaint was amended.

The final sum reflects the amount the FDIC would need to be made whole from Bank of America’s conduct during non-barred time period. Judge AliKhan described additional disgorgement remedies as unwarranted.

Bank of America accepted the judgment, stating that it had already established a reserve of funds to cover the penalty, and denied intentionally evading payments. It described the situation as a “technical disagreement.”