View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.




.PR-99-77 (11-29-77)



Statement by\^

iviiles A. Cobb/
General Colinsel
on the Government in phe Sunsnine Act

before the

Subcommittee on federal Spending Practices and Open Government'
Committee on Governmental Affairs
United States Senate

November 29, 1977

£ /$


¿3 *

tPQ RATIQ IM . 55Q Seventeenth St. N.W.. Washington. D.C. 20429


I appreciate tnis opportunity to testify on the effect of
the oovernment in the Sunshine Act on the Federal Deposit Insurance
wr. Alan


I am FDIC General Counsel and accompanying me is

. miller, tne FDIC's Executive Secretary.

Before suggesting a clarifying amendment to the Act which
I believe would furtner tne principles of tnis legislation, let
me oriefly review our experience with the Act.

As originally

anticipated, a significant portion of FDIC business is not suitable
for open meetings.

In our capacity as a bank regulator, we constantly

assess tne condition of banks, including their management.


it is necessary to consider issuing cease-and-desist orders to prevent
unsound banking practices.

Open consideration of these matters could

unnecessarily endanger the safety and soundness of banks regulated by
tne FDIC.
Examples of regulatory matters considered by FDIC's Board of
Directors which are customarily closed to the public are as follows:

Administrative enforcement proceedings under § 8 of the
FDI Act, 12 U.S.C. § 1818______ ____
Under § 8 of the FDI Act, the FDIC frequently issues
cease-and-desist orders to prevent unsafe or unsound
banking practices.

Compliance with these orders helps

return the bank to a sound position.

However, open

discussion of a case would result in the release of
confidential information contained in examination
reports and also significantly endanger the
stability of the bank.

Exemptions (8) and (9)(A)(ii)





are therefore applied to close these meetings.


tionally, the proceeding may involve sensitive
discussions concerning the bank's management which,
though relevant to our supervisory authority, would
constitute an unwarranted invasion of personal privacy
if publicly discussed.

In these cases exemption (6)

is also cited.
Applications under § 19 of tne FD1 Act, 12 U.S.C. § 1829
Under § 19 of our Act, an insured bank may not employ
an individual who has been convicted of a criminal
offense involving dishonesty or breach of trust without
first securing FDIC consent.

Very often the employee

in question was convicted years before seeking employ­
ment at the bank.

In many cases the individual went on

to compile a good record following his conviction.
Open discussions of the individual's earlier conviction
would constitute an unwarranted invasion of personal
privacy, and exemption (6) is applied to close the issue
to the public.
Unusually sensitive bank applications
The FDIC receives numerous applications from banks.
These include applications for insurance, to establish
branches or remote facilities, and to retire capital

Some of these applications are now considered

in open session.

In other instances, however, the

applicant bank may be suffering from a sensitive

-3problem such as weakness in its capital structure
or management.

In these particularly sensitive

cases, exemptions (8), (9)(A)(ii) and (6) are
applied to close the meetings.
In fulfilling its function as insurer of bank deposits and
receiver of insolvent banks, the FDIC is often required to engage
in sensitive negotiations with banks leading up to financial
assistance to troubled banks or to the sale of certain assets of
an insolvent bank and the assumption by tne purchaser of its
deposit liabilities.

The remaining assets of a failed bank are

then liquidated over time through countless commercial transactions.
Open discussion of these deliberations could lead to a run on the
bank, or to a smaller price being obtained from the sale of the
bank than would otherwise be possible.

Similarly, discussing a

proposed liquidation transaction in public session could very
easily reduce our return on the asset.

To the degree that the FOIC

does not receive the maximum price possible for a failed bank's assets,
it would not be meeting its obligations as a receiver under State
and Federal law.
Examples of financial assistance and liquidation matters closed
to the public are as follows:

Requests for assistance under § 13 of the FDI Act,
12 U.S.C. 1823____________________________________
Financially distressed banks may make application to the
FüïC for financial assistance under § 13 of the FDI Act.
Open consideration or premature disclosure of these
matters could lead to a run on the banx.


-4exemption 8 (information contained in or related to bank
examinations, condition, or operating reports) and
exemption 9(A)(ii) (information the premature disclosure
of which would significantly endanger the stability of
any financial institution) are relied upon to close these
matters to the public;

Purchase and Assumption Transactions
Meetings involving sensitive negotiations leading to the
sale of certain assets of an insolvent bank and the
assumption, by the purchaser, of its deposit liabilities
are closed pursuant to exemptions (8), (9)(A)(ii), and
9(B) (information the premature disclosure of which would
significantly frustrate a proposed agency action).


Liquidation of the Assets of an Insolvent Bank
Meetings to discuss

proposed liquidation transactions

are normally closed for the reasons discussed above.
Liquidation cases cover a wide range of commercial trans­

They may, for example, involve selling an asset,

compromising a debt, or settling a lawsuit.

Exemptions that

nave been used in closing these matters are (4) (trade
secrets or commercial or financial information obtained
from a person and privileged or confidential), (6),
(9)(B), or (10) (information relating to an agency's
participation in a civil action).

-5Since tne Act Decame effective in March of this year, the
PDIC's ratio of open to closed meetings has been 1:3.

Of the

77 meetings held from March 12 to November 22, a total of 1,102
agenda items have been considered.

Four hundred and twenty-one

of these items, or almost 40 percent, were considered in open
I want to emphasize, also, that determination as to what
items of ousiness must be closed to the public is not static.
Approximately midway through our experience with the Act, trans­
cripts of closed meetings were reviewed and it was noted that some
of the bank application cases (such as applications for insurance,
applications to establish remote facilities, applications to
retire capital notes, etc.) which were being closed did not have
to be closed.

Accordingly, the procedures were revised so that

all discussions of bank applications except those involving
particularly sensitive issues are now open to tne public.
In spite of these efforts to conduct more business in open
session, these open meetings are not well attended.

I do not believe

this poor attendance is the result of FDIC procedures.

In addition

to announcing meetings in the Federal Register as required by the
Act, announcements of meetings are posted on a large, prominently
displayed bulletin board in the Corporation's lobby.

If the public

interest requires it, there are procedures for announcing a meeting
through the use of a press release.

Finally, a mailing list is

maintained to notify individuals of pending meetings.

Anyone who

makes an inquiry about a meeting is also advised that his or her
name can be added to the list.




Poor attendance at open meetings raises tne question of
wnether the administrative burden of tne Act is justified.
burden is a very sizeable one.


In order to comply with the Act, a

substantial amount of paper work and staff time is required for
open meetings.

Closing a meeting is an even more time-consuming

I would like to suggest that this burden is unduly heavy
for tne fuIC and tne other three-member agencies, and that the
Act should be reassessed to provide relief.

Because this adminis­

trative burden has been and will continue to be the Corporation's
greatest problem with the Act, I will discuss it in some depth.
The Act defines “meeting" to mean "the deliberations of at
least the number of individual agency members required to take
action on behalf of the agency where such deliberations determine
dr result in the joint conduct or disposition of official agency
business .



This rather vague definition could be inter-'

preted very broadly to cover almost any discussion of agency
business among a quorum of agency members even if the discussion
is exploratory in nature and even if it does not result in reaching
a consensus on an issue before them.
Such a broad interpretation of "meeting" would not create the
same problems in a large agency as in a three—member agency where
two members constitute a quorum.

In a five-member agency, two

members can discuss agency policy and explore issues without a
meeting taking place since a quorum would not be present.

In a

three-member agency such as FDIC, however, this broad construction

-7would require that ail business discussions between any two
members oe treated as a meeting under the Act.

Announcements would

nave to be made and sent to the Federal Register, votes taken, and
if the "meeting" is to be closed a General Counsel's certification,
list of attendees, and transcripts would also have to be provided.
It would often be very difficult to assemble all of the staff
necessary to carry out these requirements every time two of our
directors wish to discuss an agency matter.
where a consensus is reached, or wnere a decision is predetermined
or finalized, the Act should, of course, apply.
are preliminary, exploratory discussions.

In question, however,

Treating these as meetings

under the Act could create an unmanageable burden in three-member

Tne FOIC has not reached this point as yet because a

third director nas not yet been confirmed, and the Comptroller
of tne Currency, an ex-officio member of the Board, is not directly
involved in the day-to-day operation of FOIC business.

When a third

director is confirmed, however, he will occupy an office in close
proximity to Cnairman LeMaistre and they should be permitted to
converse frequently.

Consequently, difficult administrative problems

would arise if the broad interpretation of "meeting" were followed.
There are also problems in staff briefings of two directors if
the broader interpretation is followed.

The recording of the pro­

ceedings that would oe required by tne Act could well stifle free
and open staff discussion of issues related to sensitive matters,
since portions of the transcript could in time become available to
the public.




Fortunately another reading of the definition of “meeting" is
supported by the legislative history of this Act.

The Senate Report

states tnat:
“It is not the intent of the bill to prevent any two
agency members regardless of agency size, from engaging
in informal oackground discussions which clarify issues
and expose varying views . . . .
wnen two members
constitute a quorum, however, the agency must oe careful
not to cross over the line and engage in discussions
wnich effectively, predetermine official actions."
In an Interpretive Guide to tne Act, staff members of the
Aaministrative Conference (the agency cnarged with overseeing
agencies' implementing regulations) explain the definition of
"meeting" in a way that would permit two directors of the FDIC to
have preliminary discussions without triggering the Act's requirements
we believe this is the correct construction of "meeting" u n d e r the
Act and recommend that your Subcommittee consider clarifying the
definition of "meeting" in a way that takes into account the special
problems of tnree-member agencies under the Act.

Let me emphasize

that these comments should not be taken as opposition to the Act's
primary purpose.

Tne FDXC supported enactment of tnis legislation

and intends to continue its efforts to increase public awareness of
agency decision-making, consistent with our bank regulatory functions.

1/ See p. 18 of Government in the Sunshine Act — An Interpretive
Guide, 3erg & Klitzman. Mention of this Guide is to carry/by the
author's request, the following disclaimer.
"This draft Guide has
been prepared for tne Office of the Chairman, Administrative
Conference of the Jnited States.
It represents only the views of
its authors, not necessarily those of the Office of the Chairman
or the Conference."