National Capital Office

Suite 700
1250 24 th Street, NW
AMERICAN Washington, DC 20037
ASSOCIATION Telephone: (202) 463-4888
Facsimile: (202) 349-8080
OF BANK DIRECTORS www.aabd.org

December 22,2010

The Honorable Sheila C. Bair

Chairman
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429-9990

Dear Chairman Bair:

We are writing in regard to the FDIC's recently expressed policy that bank directors have
no right to possess bank documents relevant to their defense of a potential suit by the FDIC as
receiver. The FDIC has aggressively sought to enforce this previously undisclosed policy by
filing a lawsuit against lawyers representing bank directors in the defense of proceedings by the
FDIC aimed at recovering losses from their clients. This policy is shortsighted and
counterproductive. It will deter qualified persons from accepting positions as bank directors and
will motivate currently serving directors to resign. The American Association of Bank Directors
is receiving calls from all over the U.S. from bank directors expressing concerns about this issue.
Your agency should immediately clarify that the FDIC supports the right of bank directors to the
bank records they need to defend themselves against suits by the FDIC and others.

Founded in 1989, the non-profit American Association of Bank Directors ("AABD") is

the only trade group in the United States solely devoted to bank directors and their information,
education, and advocacy needs. AABD recently established the Bank Director Liability
Resource Center, which acts as a clearinghouse for developments in bank director liability,
including lawsuits by FDIC against directors of failed banks and savings institutions. The
Institute for Bank Director Education was established in 1993 as the educational arm of AABD.
Its purpose is to act as a clearinghouse for education programs designed for bank and savings
institution directors that support the nationally recognized Director Certification Program.

FDIC Lawsuits Create the Need for Board Members to Have Access to the Records of Failed
Banks.

When a bank fails, the FDIC, as receiver, takes possession of all bank records. Unless
directors have maintained, off bank premises, records of the decisions they made prior to the
bank's failure - such as Board and committee minutes, records of loans or policies and
procedures approved by the board, examination reports, and outside expert reports such as audit
reports and outside loan reports - they are effectively prevented from defending the actions they
took as directors. As you are aware bank directors have a fiduciary obligation and are held to a
The Honorable Sheila C. Bair
Page Two
December 22, 2010

high standard of care relating to their obligation to make informed and prudent decision relating
to the conduct of the bank's affairs. The review of information relating to the bank's conduct of
its affairs is critical to the discharge of this function. The FIDC is aware of this critical need and
should encourage directors to be fully informed during their tenure. To require that all such
documents be returned post seizure without even an attempt to protect legitimate interests
through a protective order makes transparent that the only interest the FDIC is pursuing in
litigating for the return of such records is to cripple the ability of the bank director to document
the exercise oftheir fiduciary duties in any lawsuit brought by the FDIC as receiver.

This is especially true when the FDIC challenges decisions made years prior to the bank's
closing about which memories surely have faded. In the early 1990s, some complaints filed by
the Resolution Trust Corporation ("RTC"), which served a similar function for failed S&Ls,
alleged that directors breached their fiduciary duties by approving loans more than ten years
prior to the date of the complaint. AABD's seminal study on the RTC's 1992 lawsuits (RTC
Suits against Savings Institution Directors and Officers - Are they in the Public Interest? issued
in 1995, ("RTC Suit Study")) reported that the RTC routinely barred directors from accessing
key bank records during the investigative phase of the case, and only acceded to document
requests after the court ordered it to do so following the filing of a lawsuit. But this precluded
directors from access to bank records that might have allowed them to convince the RTC not to
file a suit in the first place.. In contrast, through its subpoena power, the RTC had free access to
any bank records in the possession of the directors as well as to their personal financial records
and was able to depose directors without showing them the records needed to refresh their
memones.

This one-sided process was made worse by the use of tolling agreements which
prolonged the statutes of limitations for suits against directors of failed institutions. The RTC
represented that if a director did not agree to toll the statute of limitations, it would file suit.
When a director did agree, the RTC retained the right to file suit for an extended period, allowing
the RTC time to strengthen its case, while the director - who remained without access to the
bank files - was placed at an even greater disadvantage as his memory continued to fade.

AABD also has received reports from defense counsel of examples of both the RTC and
the FDIC losing or misplacing key bank documents.

There is no question that the same delay tactics and possibilities for lost documents
persist with regard to any forthcoming FDIC suits against failed and failing bank boards of
directors. Bank directors have the absolute right to access bank records during their tenure on a
bank's board, and that right should not be impeded when the decisions those directors made are
called into question after the fact. Without access to the documents supporting the decisions
made, directors may be unable to defend themselves against an FDIC lawsuit. Indeed, it appears
The Honorable Sheila C. Bair
Page Three
December 22, 2010

that the express purpose of the FDIC's position is to ensure that directors are unable to defend
themselves in suits in which the FDIC may seek to hold them personally liable for their actions
as directors.

The FDIC's Suit against Bryan Cave.

The FDIC's suit against the law firm Bryan Cave makes transparent the FDIC's desire to
prevent former directors of failed institutions from obtaining effective legal representation. On
November 9, 2010, the FDIC sued Bryan Cave, a law firm representing directors of Hillcrest
Bank prior to its October 22, 2010 closure. The FDIC demanded that Bryan Cave return (i) the
bank documents in its possession, which likely related to a forthcoming FDIC lawsuit against the
directors, and (ii) legal fees paid to Bryan Cave by the bank prior to its closing.

Bryan Cave recommended that copies of bank documents bearing on the directors' duties
and responsibilities be held separately by board counsel, presumably because the FDIC, in the
past, purportedly had been unwilling to allow directors of failed banks to review such
documents, despite the fact that the FDIC would have benefitted from obtaining meaningful
feedback regarding the strengths and potential weaknesses of its potential suits from the very
targets of those potential suits.

Allowing directors access to documents relevant to transactions that might have occurred
many years ago would allow the FDIC to obtain critical information regarding whether to
proceed with a potentially ill-advised suit. Indeed, the FDIC should want directors to have
access to these documents so that pre-suit depositions are actually fruitful and informative,
providing the FDIC all of the relevant information it needs to reach an informed judgment.

Accordingly, AABD requests that the FDIC announce publicly that:

1. Once the FDIC issues a demand letter to a director of a failed bank, it will advise
the director that he or she is entitled to obtain copies of or review bank files from
the FDIC under any appropriate confidentiality restrictions.

2. Bank directors may at any time obtain, possess and retain copies of any bank
records under appropriate confidentiality restrictions and may retain such bank
records following the closing of their bank, subject to such confidentiality
restrictions.
 The Honorable Sheila C. Bair
Page Four
December 22, 2010

3. Bank directors are entitled to be represented by counsel and their banks are
subject to general corporate statutes and their articles of incorporation and byla s
as to the circwnstances and the procedures under which the bank might pay for
their legal defense.

The FDIC has an opportunity to correct the injustices of the past, and to give directors of
failed banks a fair shake.

Sincerely,

David Baris
Executive Director