Bank of America must pay $540 million to the Federal Deposit Insurance Corp (FDIC) following a ruling in a long-running legal battle over deposit insurance payments, a federal judge has determined.

US District Judge Loren AliKhan ruled that the bank was liable for "lawfully payable" assessments, although this amount is significantly less than the nearly $2 billion initially sought by the regulator.

The case stems from a 2011 FDIC rule implemented after the 2008 financial crisis that changed how banks report counterparty risk exposures. Under this rule, banks were required to report exposures at the "consolidated entity level" rather than calculating them separately.

"After reading the text of the 2011 rule and acting in good faith," Bank of America "should have been able to identify with ascertainable certainty the standards it was expected to apply," Judge AliKhan wrote in her decision dated 31 March.

The FDIC claimed that Bank of America intentionally failed to follow the rule by understating its counterparty exposure, which helped it "evade" more than $1 billion in assessments. Bank of America denied these claims and argued the rule wasn't clear.

"We are pleased the judge has ruled and have reserves reflecting the decision," said Bill Halldin, a spokesperson for the bank, in a statement.

The judge ordered the company to make payments covering the period from the second quarter of 2013 through the fourth quarter of 2014, ruling that earlier claims were time-barred.

As of September 2016, Bank of America held about $1.2 trillion in US deposits, including $700 million insured by the FDIC, according to court filings. The agency said the bank's underpayment represented a "material" amount for the government's $81 billion insurance fund.

The judge rejected Bank of America's arguments that the rule was invalid or ambiguous, concluding that Congress gave the agency "substantial discretion" to determine parts of the "risk-based assessment system" for banks.

The FDIC had sought about $1 billion in missed payments starting in 2011, plus an additional $1 billion it claimed the bank earned by avoiding its insurance obligations. However, the judge ruled the bank won't have to forfeit any profits.

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