ABA Expresses Concerns About Fed’s Proposal Requiring Bank Holding Companies to Report Legal Reserves

WASHINGTON, Aug. 1, 2012 – In a letter sent yesterday to the Board of Governors of the Federal Reserve System, American Bar Association President Wm. T. (Bill) Robinson III expressed the ABA’s serious concerns about the board’s proposed changes to the Comprehensive Capital Analysis and Review data collection schedules that would require bank holding companies to report their legal reserves for pending and probable litigation claims.

While expressing appreciation for the board’s efforts to gather additional information to preserve the safety and soundness of the banking system, Robinson cautioned that “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” and interfering with the banks’ fundamental right to effective counsel.  The letter explained that because banks establish legal reserves for litigation claims after close consultation with their lawyers and based on the lawyers’ extensive legal analysis and professional judgment, the legal reserve determinations are inherently privileged and work product protected.

Further, the ABA president expressed concerns that the proposal “could severely prejudice the banks’ legal positions in pending and probable litigation matters” by informing their adversaries of how the banks and their lawyers weigh the relative strengths and weaknesses of the subject claims.  Such a result, Robinson explained, would be unfair to the bank clients and reduce, not enhance, the safety and soundness of our financial system by making banks less able to defend themselves in litigation, and would further undermine the right to effective counsel and our nation’s adversarial system of justice.

The letter can be found online.

- 30 -