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August 01, 2012

ABA concerned about Federal Reserve Board proposal

The ABA expressed its serious concerns July 31 about a Federal Reserve Board proposal to require banking holding companies to report detailed information regarding their legal reserves for pending and probable litigation claims.

Then ABA President Wm. T. (Bill) Robinson III, writing to the Federal Reserve System’s Board of Governors, expressed the association’s appreciation for  the board’s efforts to gather additional data regarding the operational loss exposures of banking holding companies in an effort to preserve the safety and soundness of the banking system. He cautioned, however, that the proposed changes to the Comprehensive Capital Analysis and Review data collection schedules could “weaken fundamental attorney-client privilege and work product protections, undermine the confidential lawyer-client relationship and the right to effective counsel, and severely prejudice banks in defending against lawsuits.”

Robinson explained that banks and other companies establish their legal reserves for litigation claims in close consultation with their lawyers. Because these consultations almost always involve confidential communications between the client and the lawyer, as well as extensive legal analysis and the exercise of professional judgment by the lawyer in weighing the relative strengths of claims defenses, the resulting legal reserve determinations are inherently privileged and work product protected. “By requiring banks to submit privileged and confidential legal reserves information to the board, the proposal risks chilling and seriously undermining the confidential lawyer-client relationship,” he said. 

“Lawyers and their bank clients alike may lose confidence that their private communications and the lawyer’s professional analysis, judgment and advice will remain confidential.” Therefore, Robinson noted, the proposal could affect both the willingness of bank clients to be fully candid with their lawyers and the lawyers’ willingness to provide expert counsel to the banks, “thereby interfering in a substantial way with the banks’ right to counsel.” He also expressed concern that the proposal could severely prejudice the banks’ legal positions in pending and probable litigation matters by informing adversaries of how the banks and their lawyers weigh the strengths and weaknesses of claims.

Robinson urged the board to withdraw the proposal and to continue its constructive dialogue with the legal profession, the banking community and other stakeholders to create new data collection procedures.

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