SDNY Adopts Bank-Examination Privilege for FHFA Communications with Fannie Mae and Freddie Mac

In a matter of first impression, the SDNY adopted the bank-examination privilege to protect from compelled discovery communications between the Federal Housing Finance Agency (FHFA) and the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).  FHFA v. JPMorgan Chase & Co., 2013 WL 5660247 (SDNY Oct. 16, 2013).  You may access the opinion here.

Residential Mortgage-Backed Securities

FHFA,fhfa as conservator of Fannie Mae and Freddie Mac, sued several financial institutions involved with the packing, marketing, and sale of residential mortgage-backed securities purchased by Fannie Mae and Freddie Mac.  FHFA asserted the bank-examination privilege to withhold from discovery approximately 15,000 documents.  The financial institutions argued that the privilege did not apply because Fannie Mae and Freddie Mac are not banks and the FHFA is not a bank regulator.


The court first reviewed the rationale behind the common-law bank-examination privilege.  Effective practical regulation requires bank regulatory agencies and their regulated entities to communicate openly, and the privilege encourages banks to have candid and open communications with its regulatory overseers.  And public disclosure of bank–regulator communications may lead to public scrutiny of an entity’s soundness—a consequence that regulators seek to avoid.

First Impression Ruling

The court found no precedent addressing whether the federal common-law bank-examination privilege applied to the FHFA.  But in this matter of first impression, the court held that the FHFA may assert the bank-examination privilege because its regulatory oversight of Fannie Mae and Freddie Mac implicates the same concerns that justify the bank-examination privilege in the banking regulatory sphere.

The court determined that FHFA’s oversight duties overlap the oversight duties of bank regulators.   And the need for Fannie Mae and Freddie Mac to communicate freely with the FHFA mimics banks’ need for open communications with their regulators.  And the need for public confidence in the federal lending system is as strong as the private financial system.

In short, “considerations of economic stability counsel in favor of a regulatory regime in which FHFA can informally and confidentially discuss issues of capitalization and liquidity with [Fannie Mae and Freddie Mac] in a privileged manner rather than through formal comment and adjudication.”

Semantics over Substance

The court rejected the financial institutions’ argument that FHFA is not a bank regulator and Fannie Mae and Freddie Mac are not banks, stating that to do so elevates semantics over substance.  And to decide whether to adopt the privilege in the FHFA setting “on the sole ground that a judge at some point in the past named this privilege the ‘bank’ examination privilege, without looking to the principles underlying the privilege and their application to the facts at hand, would run counter to the standard enunciated in Rule 501 and in the caselaw.”