A recovery process in bank failures or fraudulent investment schemes can take a while. Often, money and other assets are (partly) embezzled. Often compensation for those being duped is derived from multiple sources. In bank failures for example, Deposit Guarantee Schemes (Europe) or the FDIC programmes (USA) are often the first components of a repayment to bank customers.
As we can read in the media, affairs like Lehman Brothers, Icesave and the Madoff Ponzi fraud take years to settle and close. Almost always, short term liquidity (which is immediately available) is not enough to cover all losses by depositors and investors. Therefore compensation to those being duped has a recurring character. In the case of FBME Bank for example, when court agrees to liquidate the bank, there is short term liquidity in the form of deposits at the FBME accounts, two transfers made by one correspondent bank to the central bank and a transfer from FBME to the central bank in order to protect the customers interest. Medium term liquidity comes from the investment in T-bills by FBME. Upon maturity of these T-bills, another round of repayments to bank customers and investors can be made. If short term and medium term liquidity is still not sufficient to cover all losses, long term liquidity must be settled as well. Long term liquidity in the case of FBME Bank is the commercial real estate portfolio (although there are only a handful properties) and the funds being blocked at corresponding banks. It is uncertain how long it will take to sell the real estate portfolio and when corresponding banks return the funds blocked on their nostro accounts.
Once all is over and the bank is dissolved, damages can be claimed in a claim of liability. Obviously you need to know who is liable. Only a judge can decide who is responsible and even liable. In case of a bank failure, the banking institution has a liability insurance that can be addressed.
To conclude, if your case involves the liquidation of a bank, the recovery process can have five stages. These five stages determine the length of the recovery process. This is not something a third party can influence. You are dependent on bureaucratic rules, regulations and even legal verdicts. The five stages are:
- External insurance guarantee
- Short term liquidity
- Medium term liquidity
- Long term liquidity
- Claim(s) of liability