• Bank of America must pay $540.3 million to the FDIC over underpaid deposit insurance contributions, a judge ruled
• The case stems from a 2011 rule on how banks report counterparty risk
• The bank challenged the rule’s clarity but failed to convince the court
• While the judge found no intent to deceive, she upheld the FDIC’s authority and expectations.

Bank of America has been ordered to pay $540.3 million to the Federal Deposit Insurance Corp. following a federal judge’s decision in a high-stakes legal battle over underpaid deposit insurance premiums.

The judgment, made public on April 15, marks a significant milestone in a dispute that dates back to 2017 and centers on how the bank reported its risk exposure under a 2011 FDIC rule.

The regulator alleged that the bank underreported its counterparty exposures by failing to consolidate them, thereby minimizing its calculated risk and lowering its contributions to the Deposit Insurance Fund.

The fund exists to protect customer deposits up to $250,000 in the event of a bank failure, with contributions from all insured institutions.

Rather than following the rule’s requirement to report counterparty risk at the consolidated entity level, Bank of America submitted individual exposures, reducing its overall concentration measure. 

This led to what the FDIC called significant underpayments between mid-2013 and late 2014.

The bank challenged the rule, arguing that it was unclear and improperly adopted. It also contended that its reporting methods were transparent and repeatedly disclosed to the regulator, disputing any claim of intentional evasion.

U.S. District Judge Loren L. AliKhan agreed that the bank did not act with deceit. In her ruling, she wrote that the lender’s repeated disclosures made it difficult to conclude that the bank intended to mislead. 

However, she found that the rule was sufficiently clear for the bank to understand and apply correctly.

“The court cannot find that [Bank of America] lacked fair notice of what was required of it,” the judge wrote.

The FDIC originally sought $1.12 billion in assessments and alleged profits the bank gained by underpaying. But the judge declined to order disgorgement of profits, limiting the penalty to the unpaid assessments plus interest. 

Bank of America acknowledged the ruling and said its litigation reserves reflected the decision. A spokesperson declined to comment on whether the bank would appeal. The FDIC also declined to comment.

The case is likely to influence how other banks approach regulatory interpretation and risk disclosure.

The court’s validation of the FDIC’s position sends a strong signal about the need for clarity in risk reporting and the consequences of misinterpretation, even without fraudulent intent. 

During the bank’s first-quarter earnings call, Bank of America CFO Alastair Borthwick confirmed that litigation expenses had contributed to a 6% rise in non-interest expenses, which totaled $17.8 billion for the quarter.

He linked the increase to the court’s ruling, describing it as a significant driver of the cost spike.

Beyond litigation, the bank reported the acquisition of an $8 billion portfolio of residential mortgage loans, which it expects will generate $100 million in annual net interest income.

While the seller was not named, reports suggest the portfolio was acquired from TD.

In the face of looming recession concerns and market instability, the bank’s leadership emphasized the strength of its credit risk profile.

CEO Brian Moynihan highlighted efforts to maintain a stable and diversified loan book, positioning the institution to weather future economic shocks without retrenching its services.