The American Association of Bank Directors has issued a letter to the Federal Deposit Insurance Corp., urging the FDIC to clarify its policy about whether bank directors are allowed to retain bank documents after the agency takes over a failed bank as receiver.
The Dec. 22 letter is signed by Buckley Sandler partner David Baris, who serves as executive director of the AABD, a nonprofit organization that works on behalf of bank directors. It says that the FDIC’s policy that bank directors have no right to possess such records is “shortsighted and counterproductive” because it effectively prevents directors from defending the actions they took while at the failed bank.
The policy is at the heart of two suits involving the FDIC and law firms that advised clients to retain records after their banks were put into a receivership.
In November, the FDIC sued Bryan Cave in federal court in Atlanta, charging the firm with failing to hand over records related to the collapse last month of Overland Park, Kan.-based Hillcrest Bank. According to the FDIC’s complaint, the bank regulator, as receiver for Hillcrest, claims it has brought the action against Bryan Cave in order to obtain documents that were in the firm's possession and to stop the potential destruction of those records. The Am Law Daily reported on that case here.
McKenna Long & Aldridge filed suit against the FDIC not long after the Bryan Cave case, claiming that the agency’s policy is unlawful. That case, which was filed in the U.S. District Court for the Northern District of Georgia, seeks a declaratory judgment against the FDIC, which McKenna asserts cannot require it to relinquish copies of board meeting minutes, loan files and reports from four failed banks. The National Law Journal reported on McKenna’s suit here.
Baris writes in the AABD’s letter that the FDIC should clarify its policy and assert that it supports the right of bank directors to the bank records they need to defend against FDIC suits or those filed by others.
“[The policy] will deter qualified persons from accepting positions as bank directors and will motivate currently serving directors to resign,” Baris writes.
In an interview, Baris said that the first time the AABD became aware of the FDIC’s policy was in the agency’s complaint filed in the Bryan Cave case. Since then, the AABD has been receiving calls from bank directors across the country who are concerned about the policy, he said.
“I can’t think of any other industry that would face similar requirements for directors of corporations,” Baris said. “Directors should be able to explain to the FDIC why a lawsuit isn’t appropriate. And the FDIC should be able to receive informed explanations of the circumstances, as well. This would be in everyone’s best interest.”
Baris said that in many cases, the questions put to bank directors involve decisions that were made five or 10 years before the bank failed, and it would be “impossible” for directors to simply remember their thought process at the time of a given decision.
“It also affects how law firms advise their clients in these situations,” Baris said. “The FDIC needs to clarify or amend it’s policy so bank directors know how to appropriately respond.”
Baris said the FDIC has not yet responded to the letter. FDIC spokeswoman LaJuan Williams-Young declined to comment on the letter.