Bankruptcy Judge Blocks FDIC’s Bid To Assert $905 Million Priority Claim

A bankruptcy judge in Alabama has blocked the Federal Deposit Insurance Corporation’s bid to seek almost $905 million against a bank holding company now in Chapter 11 liquidation, rejecting FDIC claims that the bank holding company promised to maintain capital at its now-failed bank subsidiary (In re: The Colonial Bancgroup Inc.).

The Sept. 1 ruling by the U.S. Bankruptcy Court for the Middle District of Alabama is the latest to highlight an aggressive effort by the FDIC to reach a wide array of assets to minimize the costs of bank failures.

Beginning in 2008 and continuing into 2009, ...