Banking and financial services is one of the most heavily regulated industries in the country. Indeed, banks are subject to the oversight by a myriad of state and federal regulatory agencies. These regulatory agencies enjoy a common law privilege, often referred to as the “Bank Examination Privilege,” that protects a banking regulator’s opinions and recommendations from disclosure to third parties. These privileged documents may include documents in bank loan files that are be subject to third party discovery in litigation.
What is the Bank Examination Privilege?
The Bank Examination Privilege (the Privilege) is a judge-made confidentiality protection over a regulator’s working files and opinions that belongs to the regulatory agency. The Privilege may be waived only by that agency, and then only as to the documents or information to which the Privilege applies. The “success of [regulatory supervision] depends upon the quality of communication between the regulated banking firm and the bank regulatory agency.” In re Subpoena Served Upon Comptroller of the Currency, 967 F.2d 630, 633 (D.C. Cir. 1992). The Privilege exists therefore, according to courts, to protect “communications between banks and their examiners in order to preserve absolute candor essential to the effective supervision of banks.” Wultz v. Bank of China, 2013 U.S. Dist. LEXIS 51181 (S.D. N.Y. Apr. 9, 2013).
Which Regulators May Assert the Privilege?
Generally, the following regulators may invoke the Privilege:
- The Office of the Comptroller of the Currency
- The Board of Governors of the Federal Reserve System
- The Federal Reserve Bank, when acting in a bank examination or supervisory capacity
- The Federal Deposit Insurance Corporation
- The Consumer Financial Protection Board
- State Banking Authorities
The Bank Examination Privilege does not extend to regulators outside the banking industry, such as the Securities Exchange Commission, nor does it apply to non-governmental oversight agencies, such as the Financial Industry Regulatory Authority (FINRA).
What Documents Are Protected?
The Bank Examination Privilege covers documents or information reflecting the opinions, deliberations or recommendations of governmental bank regulatory agencies. Documents authored by bank examiners are generally covered; but also, documents concerning or referring to materials authored by or sent to bank examiners must be examined closely for a privilege determination. Even internal bank documents that have never been shared with regulators may be subject to the Bank Examination Privilege if they contain or reflect information or communications that are subject to the Privilege.
Examples of documents that likely fall within the scope of the Bank Examination Privilege include, but are not limited to:
Bank Examination Reports.
Memoranda of Understanding with bank regulators and communications leading to such Understanding.
Communications relating to bank supervision - including the Bank’s response to a regulator’s opinion.
The Bank Examination Privilege ordinarily does not cover:
- Purely factual matter that does not reflect opinions, deliberations or recommendations of a bank regulator.
- Requests for information from a bank regulator.
- Bank documents prepared for other purposes and later shared with a bank regulator.
- Documents prepared for or sent to a bank regulator that are not related to a bank examination or supervisory activity.
What is the Bank’s Policy on Disclosure?
No documents or information subject to the Privilege should be produced unless the Privilege is specifically waived by the regulator or ordered by a court after review. In fact, the production of certain categories of materials subject to the Privilege may constitute a crime. It is the responsibility of the Bank and its outside counsel to preserve the Privilege when responding to any subpoena or request for production of documents in litigation or demand for information from a non-banking government agency. Counsel should notify the regulator of the request or demand and then, typically, file protected documents under seal for an in camera review by a court to decide whether the documents will be produced. See In re Subpoena Served on Comptroller, 967 F.2d at 634-635.