A recent Decision by the Board of Governors of the Federal Reserve System (the Board) sheds light on certain rights that banks may have when their employees engage in improper behavior when moving to a competing bank — and issues a stark warning for bank employees looking to do so. The Decision highlights the risk not only of civil litigation but also of an order of prohibition from further participation in banking under the Federal Deposit Insurance Act (the FDI Act), 12 U.S.C. § 1818(e).
The Decision, In re Frank E. Smith and Mark A. Kiolbasa, No. 18-036, 2021 OFIA Lexis 2 (Off. of Fin. Inst. Adjud. March 24, 2021), addresses the conduct of two former employees and officers of Central Bank & Trust (Central), a Wyoming state bank, who were exploring opportunities for Central to partner with and possibly acquire a competitor, Farmers State Bank (Farmers). The employees eventually resigned from Central to pursue personal opportunities with Farmers but improperly moved business, information, and documents with them to Farmers. For example, the employees improperly moved loans they had managed from Central to Farmers by circumventing the usual preliminary step of a competitor bank submitting formal, written payoff information requests for these loans; instead, Farmers sent Central checks for exact loan payoff amounts, which deprived Central of the opportunity to engage in its typical practice of contacting and attempting to retain its customers. The employees also...
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