Federal Deposit
Insurance Corporation

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   [¶8015] In the Matter of The American Bank of the South, Merritt Island, Florida, Docket No. FDIC-92-17b (3-31-92).

   FDIC Board denies motion for a private hearing because Bank did not demonstrate how a private hearing would serve the public interest.

   [.1] Practice and Procedure—Private Hearings—Borrowers' Privacy
Concern for privacy of borrowers is common to nearly all Section 8 proceedings and is not in itself sufficient to overcome statutory presumption in favor of public hearings.

   [.2] Practice and Procedure—Private Hearings—Nature of Proceedings
   The fact that proceeding is narrow, limited to few issues or a single violation of law, is of no relevance to whether a hearing addressing those matters should be public.

In the Matter of
THE AMERICAN BANK OF THE
SOUTH,
MERRITT ISLAND,
FLORIDA
(Insured State Nonmember Bank)
DECISION AND ORDER ON
MOTION FOR PRIVATE HEARING
FDIC-92-17b

   The Federal Deposit Insurance Corporation ("FDIC") initiated this proceeding on January 16, 1992, when the Regional Director (Supervision) of the FDIC's Atlanta Regional Office issued a Notice of Charges and of Hearing ("Notice") alleging that The American Bank of the South, Merritt Island, Florida ("Bank" or "Respondent"), has engaged in unsafe or unsound banking practices and violated certain laws. The Notice informed the Bank that the proceeding would determine whether an appropriate order should be issued pursuant to section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(b)(1) ("FDI Act"). On January 22, 1992, Administrative Law Judge Arthur L. Shipe was designated to hear the case.
   On February 6, 1992, Respondent filed a Motion for a Private Hearing. The sole reason advanced by Respondent in support of its motion is the protection from disclosure of the "private financial affairs" of "innocent third parties." Respondent seeks to keep confidential these affairs by closing the hearing to the public and sealing pleadings and exhibits filed in the case. In a letter dated and served February 26, 1992, FDIC Enforcement Counsel raised objections to Respondent's request.¹

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   A. The Governing Statute and Regulations.

   This case presents one of the first requests for a private hearing in FDIC enforcement proceedings pursuant to section 8(u) of the FDIC Act, 12 U.S.C. § 1818(u). Section 8(u)(2) provides that:

All hearings on the record with respect to any notice of charges issued by a Federal banking agency shall be open to the public, unless the agency, in its discretion, determines that holding an open hearing would be contrary to the public interest.

   In enacting section 8(u)(2), Congress expressly reversed the policy set forth in the prior version of the FDI Act that all FDIC hearings held pursuant to section 8 of the FDI Act were to be private, unless the FDIC determined that a public hearing was necessary to protect the public interest. See Pub. L. 101–647, 104 Stat. 4886 (November 29, 1990), amending 12 U.S.C. § 1818(h)(1) (1989). That hearings under section 8 of the FDI Act are now required to be open to the public unless the agency determines that it would be contrary to the public interest creates an express statutory presumption that public hearings will be held in all such proceedings.
   Respondent states its awareness of the public policy considerations which underlie this presumption. Respondent contends, however, that there are private considerations which outweigh the presumption. The only consideration discussed in Respondent's motion is an alleged need to protect the confidentiality of the financial affairs of third parties, presumably customers and borrowers whose credits are at issue in the Notice. Respondent states that only one allegation of a violation of law is involved in the proceedings and that the issues relating to it can conceivably be resolved by a motion for summary judgment. It apparently suggests that the charges are limited and relatively insignificant when compared to the number of third parties with credits issued by the Bank which have become the subject of disputed FDIC classifications.

   [.1] Respondent fails to make even a minimal showing of why the presumption in favor of public hearings should be discarded in this case. The Bank's sole alleged justification, the need to keep confidential the loan information of customers or borrowers, does not offer any reason sufficient to overcome the statutory presumption and order exceptional relief in the nature of a private hearing. Respondent's concerns are common to nearly all section 8 proceedings and potentially affect only its own interests.
   No evidence has been presented which would persuade the Board that holding a public hearing is contrary to the public interest. Although no guidance is provided in the statute or in the legislative history as to the precise contours of the "public interest" standard, the Board chooses to follow the reasoning of prior Board decisions addressing related provisions of section 8(u).
   In In the Matter of Mansfield Bank, FDIC-90-44b, 2 P-H FDIC Enforcement Dec. and Ord. ¶5165 at A-1698.13 (March 12, 1991), and In the Matter of Bank of Salem, FDIC-89-229b, 2 P-H FDIC Enforcement Dec. and Ord. ¶5164 at A-1656.3 (February 28, 1991), the Board found that there were no "exceptional circumstances" within the meaning of former section 8(u)(2) of the Act necessitating a delay in the publication of final orders to protect the safety and soundness of the respondent institutions.

{{7-30-92 p.I-58}}See former 12 U.S.C. § 1818(u)(2), now codified at 12 U.S.C. § 1818(u)(5).
   The Board is of the opinion that the considerations behind Congress' concern for the "safety and soundness of the institution" when making available to the public final FDIC orders are the same considerations by which Congress intended requests for private hearings under new section 8(u)(5) of the FDI Act to be measured. Since the primary mission of the FDIC is to preserve and protect the insurance fund, logic suggests that the issue whether an open hearing would be contrary to the public interest contemplates safety and soundness concerns. Judged in this context, the Board finds that the mere fact that the evidence at a hearing might disclose loans or credits to individuals or entities not parties to the proceedings does not threaten the safety and soundness of the Respondent institution, and could not be intended by Congress to serve as a basis for closing the hearing to the public.

   [.2] The Board is also not persuaded that the alleged narrowness of the proceeding justifies holding a private hearing. Even if true, the fact that the proceeding is narrow and limited to few issues or even a single violation of law, notwithstanding that those few issues may involve credits owed by numerous third parties, has no relevance to whether a hearing addressing those matters should be public. If anything, a proceeding limited in such a way as suggested by Respondent and capable of resolution by summary judgment might ultimately obviate the need for any hearing, making a determination during the prehearing stage as to whether to hold an open or closed hearing not only premature, but unnecessary.
   While the Board does not believe disclosure of the identity of borrowers on problem credits in enforcement cases is a factor posing a threat to the safety and soundness of the Bank, it recognizes that privacy interests, should to the extent possible, be protected. However, absent some special privacy concerns, which do not appear here, disclosure of customer financial information is not a ground for a private hearing. If it were, it would provide a basis in every action for a private hearing which is contrary to the clear congressional intent of section 8(u).
   The Bank has failed to demonstrate any legitimate reason why the hearing in this proceeding should not be public. Accordingly, the Motion for Private Hearing is denied.