Judge Rejects Claim by Federal Deposit Insurance Corp

Last year, Federal Deposit Insurance Corp. was seized by banking regulators. Now, a federal judge has rejected the company's claim that it is owed more than $900 million from its former parent, Colonial Bank.

In Montgomery, Alabama, Judge Dwight H. Williams Jr. of the U.S. Bankruptcy Court granted summary judgment to Colonial BancGroup Inc. in a ruling which dismissed the FDIC's attempt to go after the parent company for failure to maintain capital levels at the bank.

Judge Williams said the language of the agreements between the parent and the federal and state bank regulators indicates that the holding company, "did not make a commitment to maintain the capital of Colonial Bank."  He also ruled that even though the parent company made a commitment, it would not stand under U.S. bankruptcy law because it could not be "assumed and cured" since Federal Deposit Insurance Corp. was no longer operational.

At this time, the FDIC has refused to tell reporters whether it would appeal Judge Williams' decision.

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