In a striking turn of events, nearly 170 former employees of First Republic Bank in California have filed a lawsuit against the U.S. Federal Deposit Insurance Corporation (FDIC). The employees allege that the regulator is wrongfully preventing them from accessing at least $150 million in retirement funds. The plaintiffs' attorney, Timothy Walsh of Winston & Strawn, made the announcement on Monday.

This legal action adds to the growing list of repercussions faced by the FDIC following the bank failures earlier this year, which incurred a massive cost of approximately $32 billion to the agency's deposit insurance fund. These failures have attracted considerable attention from lawmakers.

First Republic Bank, with assets exceeding $200 billion, became the largest bank to collapse since the financial crisis of 2007-2009. Despite efforts made by major banks, including JP Morgan Chase & Co, to stabilize the institution through a $30 billion deposit infusion in March, the bank's demise was inevitable.

As the receiver, the FDIC sold virtually all of First Republic's assets to JP Morgan in May. The latter assumed all the bank's deposits and liabilities. However, the former employees claim that in mid-May, the FDIC ceased making payments they were entitled to under a deferred compensation plan established for them in a trust by First Republic. Instead, the FDIC categorized them as unsecured creditors, leaving their retirement funds at risk of being completely lost.

Attorney Timothy Walsh argues that the treatment of the former employees is inequitable, emphasizing that it was their hard work and dedication that played a crucial role in keeping the bank healthy and profitable. Notably, his clients do not include any of the top executives whose alleged mismanagement contributed to First Republic's downfall.

Walsh points out that while the FDIC's resolution of First Republic protected the Wall Street banks that injected deposits into the failing institution, the retirement funds of the former employees were significantly smaller. It has been estimated that the FDIC incurred a cost of approximately $15 billion due to the bank's failure.

In addition to this lawsuit, the FDIC is also facing legal action from the former parent company of Silicon Valley Bank, which is seeking the return of approximately $2 billion that the agency seized following the bank's collapse.

The outcome of both cases will likely have significant implications, not only for the affected employees but also for the FDIC's handling of bank failures and the broader financial industry as a whole.