The CFPB recently issued guidance on the treatment of confidential supervisory information. CFPB Bulletin 12-01 states that once the bureau issues a request for information, supervised financial institutions (i.e., those with total assets of more than $10 billion) are required to provide all documents and other information responsive to the request. The bulletin adds:
Supervised institutions may not selectively withhold responsive documents based on their judgment that such materials are not necessary to the Bureau’s execution of its responsibilities or that other materials would be sufficient to suit the Bureau’s needs. The supervisory process is based on the supervisor’s full and unfettered access to information, and the supervisor is entitled – indeed, duty bound–to ensure that it thoroughly understands the institution in question and has access to all information that, in its independent judgment, may bear on its supervisory responsibilities.
The Bulletin argues that providing requested information to the bureau will not result in a waiver of any privilege that may attach to such information, and thus it will not consider waiver concerns to be a valid basis for withholding information from the agency. However, the agency will give “due consideration to … requests to limit the form and scope of any supervisory request for privileged information.”
Finally, the Bulletin reiterates that all information obtained in the supervisory process will be treated as confidential and privileged, other than in cases when the exchange of such information with other regulators that share supervisory jurisdiction over a supervised institution is prudent, as determined by the CFPB’s general counsel.
On February 24, 2009, the Federal Reserve published a Supervisory Letter regarding the ability of bank holding companies to declare dividends and to redeem or repurchase equity securities. The Supervisory Letter is generally consistent with prior guidance, although places greater emphasis on discussions with the regulators prior to dividend declarations and redemption or repurchase decisions even when not explicitly required by the regulations. Although consultation with the Federal Reserve in these situations is optional, the guidance makes clear that the failure to consult with the Federal Reserve “could result in a supervisory finding that the organization is operating in an unsafe and unsound manner.”
The Federal Reserve provides that the principles discussed in the letter are applicable to all bank holding companies, but are especially relevant for bank holding companies that are experiencing financial difficulties and/or receiving TARP Capital. To that end, the Supervisory Letter specifically addresses the Federal Reserve’s supervisory considerations for TARP Capital participants.
TARP Capital
In addition to the general guidance provided by the Supervisory Letter and the explicit restrictions on dividends, repurchases and redemptions contained in the TARP Capital documents, the Supervisory Letter also provides guidance on how the supervisory staff will analyze TARP Capital recipients. The guidance provides that TARP recipients should “consider and communicate reasonably in advance” to supervisory staff how the bank holding company’s proposed dividends, capital redemptions, and capital repurchases are “consistent with the requirements applicable to its receipt of capital under the program and its ability to redeem, within a reasonable period of time and with Federal Reserve consent, its outstanding capital issuance under the program.” The Federal Reserve’s guidance specifically calls for the redemption of the TARP Capital “as soon as reasonably feasible and appropriate.”