On August 12, 2026, the U.S. Court of Appeals for the Seventh Circuit issued an important decision, Bonan v. FDIC, addressing the scope of the Supreme Court's 2024 decision in SEC v. Jarkesy as applied to the banking regulatory framework. The court upheld the authority to pursue administrative enforcement proceedings against bank directors and officers, concluding that certain actions brought under the Federal Deposit Insurance (FDI) Act fall within the “public rights” exception and therefore may be adjudicated by the federal banking agencies without a jury trial.
The decision provides guidance for financial institutions and institution-affiliated parties facing enforcement actions from federal banking regulators. In particular, the court distinguished the Federal Deposit Insurance Corporation’s (FDIC) supervisory enforcement regime from the securities-fraud claims at issue in Jarkesy, emphasizing that the “unsafe or unsound practices” standard that applies to banking enforcement has no meaningful common-law analogue and thus does not trigger the right to a trial by jury.
Banking Oversight and Enforcement Authority
Federal banking agencies, including the FDIC, routinely identify potential misconduct through examinations, supervisory reviews, and investigations of banks and institution-affiliated parties. When examiners conclude that an officer or director may have engaged in unsafe or unsound practices, breached fiduciary duties, or otherwise violated banking laws, they may initiate an administrative enforcement action pursuant to their authority under the FDI Act.
Proceedings by banking regulators like the FDIC and the Office of the Comptroller of the Currency, for example, are typically adjudicated before an administrative law judge (ALJ), who conducts an evidentiary hearing and issues a recommended decision. The agency’s governing body then reviews the recommendation and issues a final order pursuant to its authority under the relevant statutory scheme, which may include civil money penalties, cease-and-desist relief, or industry bars prohibiting an individual from participating in the affairs of an insured depository institution. Final agency decisions are then generally reviewable in the federal courts.
SEC v. Jarkesy and the Legal Framework
Many commentators viewed Jarkesy as fundamentally reshaping the constitutional boundaries of administrative enforcement. The Supreme Court held that when the Securities and Exchange Commission (SEC) seeks civil penalties for securities fraud, respondents have a Seventh Amendment right to a jury trial because the statutory claims at issue are “traditional legal claims” that bear the hallmarks of common law. This meant that the SEC, which had long had the ability to bring proceedings seeking civil monetary penalties for securities fraud before an ALJ (an option viewed as inherently more favorable to the agency), instead had to litigate these claims in federal court.
In short, the Jarkesy framework involves two steps. First, a court asks whether the administrative action “implicates the Seventh Amendment”—that is, whether the claims are “legal in nature.” If so, the court proceeds to the second step: whether the "public rights" exception to Article III jurisdiction applies. Under the Supreme Court's Atlas Roofing Co. v. Occupational Safety & Health Review Commission, Congress may assign the adjudication of new statutory “public rights” to administrative agencies without violating the Seventh Amendment.
The Seventh Circuit's Decision in Bonan v. FDIC
The Bonan case arose from an FDIC enforcement action against Frank William Bonan II, former chairman of the board of directors and loan committee member of a community bank. Specifically, the FDIC alleged that Bonan engaged in unsafe or unsound banking practices and breached fiduciary duties in connection with his leadership role at the bank, including certain loan transactions. Following an administrative hearing, the FDIC permanently barred Bonan from participating in the affairs of FDIC-insured institutions and assessed a civil money penalty.
On appeal, Bonan advanced several constitutional challenges, including arguments that the FDIC’s administrative adjudication violated the Seventh Amendment under Jarkesy. The Seventh Circuit rejected these arguments and denied the petition for further review.
The Court's Analysis of Jarkesy
The centerpiece of the Seventh Circuit opinion is the court's detailed examination of the Supreme Court's decision in Jarkesy. Applying the two-step framework, the court first accepted that the FDIC’s pursuit of civil monetary penalties was “legal in nature” and thus implicated the Seventh Amendment. The critical question therefore became whether the FDIC’s claims fell within the public-rights exception permitting agency adjudication. The court concluded that they did.
According to the Seventh Circuit, the relevant statutory standards governing FDIC enforcement actions, including unsafe or unsound practices and breaches of fiduciary duty under the FDI Act, are not analogous to the fraud-based claims at issue in Jarkesy. Unlike securities fraud claims, which the Supreme Court characterized as “a common law suit in all but name,” the banking standards enforced by the FDIC arise from a specialized federal regulatory scheme.
The court emphasized that:
- The concept of an unsafe or unsound practice is a regulatory creation rather than a traditional common-law cause of action.
- Banking regulators use the standard as a flexible supervisory tool designed to protect the safety and soundness of insured institutions.
- The statutory duties enforced by the FDIC are directed toward managing systemic banking risks and preserving confidence in the federal banking system.
As a result, the court held that the enforcement action fit squarely within the framework approved by the Supreme Court in Atlas Roofing, which permits agencies to adjudicate certain statutorily created public rights.
Fiduciary Duty Claims Present a Closer Question
The court acknowledged that the FDIC’s reliance on fiduciary-duty concepts made the case more difficult. In a lengthy discussion, the court recognized that fiduciary-duty claims have deep historical roots in equity and that Supreme Court precedent contains language suggesting that traditional fiduciary-duty disputes may involve private rights. The opinion further noted that fiduciary-duty principles are ordinarily matters historically resolved by courts rather than agencies.
Nevertheless, the Seventh Circuit concluded that existing Supreme Court precedent does not clearly establish that statutory fiduciary-duty claims embedded within federal banking laws must be treated as private-right actions requiring jury trials. Thus, the Atlas Roofing decision controlled in Bonan unless and until the Supreme Court draws a different constitutional line.
The Bonan Court’s characterization of the constitutionality of fiduciary-duty-based enforcement actions as a “close and challenging” call may invite further litigation on this issue, including at the Supreme Court.
Looking Forward: The Bonan Decision Invites Further Litigation on the Scope of Federal Agency Power
The Seventh Circuit’s decision hands a win to federal banking regulators that sought to retain the ability to pursue enforcement in administrative proceedings. It also offers an early roadmap for courts evaluating post-Jarkesy challenges outside the securities context.
The opinion suggests that courts may distinguish between enforcement actions that closely resemble traditional common-law claims and those arising from specialized federal regulatory frameworks. For banking agencies, the decision reinforces the continued viability of administrative enforcement proceedings, at least in the case of the traditional unsafe or unsound practice framework.
Although Bonan preserves the FDIC’s current enforcement framework for now, the constitutional boundaries of administrative enforcement remain a rapidly developing area of law. Financial institutions, directors, officers, and other institution-affiliated parties should expect continued litigation testing the reach of Jarkesy, particularly when agency enforcement actions rest on concepts with stronger historical ties to common-law or equitable causes of action.
If you have any questions, or would like additional information, please contact one of the attorneys on our Securities Litigation team or one of the attorneys on our Financial Services team.
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