Law Commons^™

Over 20 years since the first official over-the-counter derivative trade went public between IBM and the World Bank, the divide between the OTC and exchange-traded derivatives industries is as wide as ever. Although many firms trade both types, the individual participants in those shops still tend to think of themselves as either a swaps or a futures person. Such division can best be understood by appreciating the regulatory battle in the U.S. over swap regulation. Although much of that battle ended in 2000 with the passage of the Commodity Futures Modernization Act, defining differences continue to distinguish the two industries.

This essay demonstrates through the Superior Bank failure how an administrative agency, the FDIC, can act without taking into account what is fair and just for all involved parties, instead maximizing its power or its economic recovery. The author argues that the FDIC lost sight of how it should have responded and not how it could have by giving preferential treatment to Superior's shareholders and attempting to sue the auditor Ernst & Young in contravention of Superior's contractual obligations. The FDIC's actions sublimated the fairness of the insolvency resolution process for the creditors of Superior and exposed Ernst & Young …