> **BOARD OF GOVERNORSOF THEFEDERAL RESERVE SYSTEMWASHINGTON, D. C.  20551****DIVISION OF BANKINGSUPERVISION AND REGULATION****SR 97-17 (SUP)June 6, 1997****TO THE OFFICER IN CHARGE OF SUPERVISION          AT EACH FEDERAL RESERVE BANK**SUBJECT:****Access to Books and Records of Financial Institutions During Examinations and Inspections**
                        Recently, some financial institutions have restricted examiner access torecords maintained at the institutions by claiming that the documents are protectedfrom disclosure by certain legal privileges, such as the attorney-client privilege. Additionally, some financial institutions have expressed concern that, in the eventaccess is given, neither the Federal Reserve nor the institutions may be able to protectdocuments obtained during the course of an examination or inspection from disclosureto third parties, especially shareholders, customers, or other potential litigants.  Thisletter summarizes the Board's examination authority, identifies the privileges generallyasserted by banking organizations, and provides guidance to examiners for dealingwith an institution's claim of privilege as a basis for withholding information from anexaminer.
Examination Authority
                         Under the Federal Reserve's statutory examination authority, examinersmay review all books and records maintained on the premises of a financial institutionthat is subject to Federal Reserve supervision.  This authority extends to alldocuments on the premises.  The Board's broad examination authority, exercisedthrough the Federal Reserve Banks, is found under various statutes and regulations,including:  Section 11 of the Federal Reserve Act , which authorizes the Board toexamine the accounts, books, and affairs of each member bank; Section 5 of the BankHolding Company Act of 1956, which authorizes the Board to examine each bankholding company and nonbank subsidiary thereof; Section 7 of the InternationalBanking Act of 1978, which authorizes the Board to examine each branch or agencyof a foreign bank; and Section 25(a) of the Federal Reserve Act and Section 211.7 ofRegulation K of the Board of Governors, which authorize the Board to examine Edgeand Agreement corporations. 
Legal Privileges Asserted by Banking Organizations
                        The following outlines the types of legal privileges that financialinstitutions may cite to protect documents from disclosure to the Federal Reserve:1
- Attorney-client privilege:  The attorney-client privilege protectscommunications between a client and its attorney, made withoutthird parties present, for the purpose of securing an opinion on thelaw or legal services.  The privilege also protects the attorney's oralor written legal advice to the client.  The privilege, which focuses oncommunications between attorneys and their clients, is generallywaived if the client discloses the content of the communication to anythird-party.     Work-product privilege:  The work-product privilege coversdocuments prepared in anticipation of litigation by an attorney orperson hired by the attorney or client to assist in rendering legalservices.  Disclosure to any adversarial party generally waives theprivilege as to all adversarial parties.   
Self-assessment privilege:  Some states have enacted legislation tocreate a new statutory privilege for self-assessments that protectsthem from disclosure to third parties.  Federal courts, however,generally do not recognize any privilege for self-assessments that areconducted by an institution without attorney participation.
2
Accountant-client privilege:  Some states have enacted legislation tocreate an accountant-client privilege that protects an accountant'swork from disclosure to third parties.  Federal courts, however,generally do not recognize any privilege for an accountant's work thatis conducted directly for a financial institution.   
                        It is important to recognize that claims of privilege are made traditionallyby persons resisting subpoenas or demands for production in the context of litigation. Should a banker refuse to provide a document needed by an examiner, the Boardcould issue subpoenas pursuant to an order of investigation, and a court would decidethe issue should the examined institution resist the subpoena.  An argument can bemade that the System's statutory authority to conduct on-site examinations overridesany legal privilege the financial institution may have not to disclose the information. However, the law in this area is at present unclear.
                        In the event that access to a financial institution's books and records thatan examiner believes is reasonably necessary to carry out an effective examination isdenied under an assertion of privilege, the examiner should immediately contact theappropriate Federal Reserve Bank General Counsel, who should notify Herbert A.Biern, Deputy Associate Director, at (202) 452-2620, in order to coordinate aresponse.
Disclosure to third parties by the Federal Reserve
                        Documentation obtained from financial institutions during the course ofexaminations or inspections, as well as examiner workpapers, memoranda, andreports of examination or inspection, are considered by the Board to be confidentialsupervisory information.  It is the Board's practice to protect confidential supervisoryinformation from disclosure to third parties to the greatest extent possible consistentwith applicable law and the public interest. 
                        As has been the long-standing practice of the Federal Reserve Banks,your staff should continue to notify Stephen L. Siciliano, Special Assistant to theGeneral Counsel for Administrative Law, in the Board's Legal Division, at(202) 452-3920, concerning all requests for confidential supervisory information,including court orders and subpoenas.
Stephen C. SchemeringDeputy Director
cc:  General Counsels at each Federal Reserve Bank 

**Footnotes**
1.  This summary is not intended to be exhaustive and is based on Board staff's review of the present law, which may be changed by either legislation or court decisions.  Return to text
2.  The Equal Credit Opportunity Act was amended in 1996 to provide a limited privilege for any lender that conducts an adequate self-test, identifies discriminatory practices, and takes appropriate action.  The Board will issue regulations in this area later this year.  Return to text
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