Adopted Amendments to 7 TAC §3.111

Title 7. Banking and Securities
Part 1. Finance Commission of Texas
Chapter 3. State Bank Regulation
Subchapter F. Access to Information
7 TAC §3.111

NOTE: This document was submitted to the Texas Register on the date indicated below. This is not the actual publication; the editorial staff of the Texas Register sometimes edits the submission. The Texas Department of Banking therefore does not guarantee the exact accuracy of this document.

Date: October 18, 2013

The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), adopts amendments to §3.111, concerning confidential information, without changes to the proposed text as published in the August 30, 2013, issue of the Texas Register (38 TexReg 5615).

The laws regarding business organizations were significantly modernized and integrated into a cohesive regulatory structure through enactment of the Business Organizations Code several years ago. The need for uniform and comprehensive terminology that would apply to every type of business organization, including corporations, limited liability companies, limited partnerships, and others, led to the introduction of a number of new terms.

The 83rd Legislature recently enacted Senate Bill 804, effective June 14, 2013, which amended the Finance Code to update and conform language in certain provisions to synonymous terminology and phrasing used in the Business Organizations Code.

The amendments to 7 TAC §3.111 conform the terminology used in the rule to that used in the Finance Code and the Business Organizations Code. References to “articles of merger,” “articles of conversion,” and “articles of amendment” have been changed to “certificate of merger,” “certificate of conversion,” and “certificate of amendment.”

In addition, a citation to the title of 7 TAC §9.22 and a reference to Finance Code, Chapter 31 were corrected.

The Department received no comments regarding the proposed amendments.

The amendments are adopted pursuant to Finance Code, §31.003, which authorizes the Finance Commission to adopt rules to accomplish the purposes of Subtitle A regarding banks, Finance Code, §201.002, which authorizes the Finance Commission to adopt rules to accomplish the purposes of Subtitle G regarding bank holding companies and interstate bank operations, and Finance Code, §181.003, which authorizes the Finance Commission to adopt rules to accomplish the purposes of Subtitle F regarding trust companies.

§3.111. Confidential Information.

(a)  Policy. The Texas Department of Banking (the department) is committed to the concept of open state government. As a regulator of financial institutions, however, the department recognizes the mandate of the legislature to balance the competing interests of the need of financial institutions for confidentiality regarding their financial condition and business affairs with the general public’s need for information. The legislature has determined that confidential information, with limited exceptions, should not be disclosed. See Finance Code, Chapter 31, Subchapter D, Chapter 181, and §§201.007, 204.102(c), 204.117(d) and 204.205(d). Inappropriate disclosures can result in substantial harm to financial institutions and to those persons and entities (including other financial institutions) that have relationships with them. In accordance with the historical availability of records of financial institutions and the sound public policy that generally protects them, non-disclosure under this section protects the stability of such institutions by preventing disclosures that could adversely impact financial institutions. For example, the department may criticize a bank in an examination report for a financial weakness that does not currently threaten the solvency of the bank. If improperly disclosed, the criticism can lead to adverse impacts such as the possibility of bank “runs,” short-term liquidity problems, and volatility in costs of funds, which in turn can exacerbate the problem and cause the failure of the bank. Bank failures lead to reduced access to credit and greater risk to depositors. Further, specific loans may be criticized in an examination report, and confidentiality of the information protects the financial privacy of customers. Finally, protecting confidential information from disclosure facilitates the free exchange of information between the financial institution and the regulator, encourages candor, and promotes regulatory responsiveness and effectiveness. Information that does not fall within the meaning of confidential information as defined in this section may be confidential under other definitions and controlled by other laws, and is not subject to this section.

(b)  Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1)  Affiliate--A company that directly or indirectly controls, is controlled by, or is under common control with a bank or other company.

(2)  Confidential information--Written and oral information obtained directly or indirectly by the department relative to the financial condition or business affairs of a financial institution, or a present, former, or prospective shareholder, participant, officer, director, manager, affiliate, or service provider of a financial institution, whether obtained through application, examination, or otherwise, and all related files and records of the department, regardless of the form of the information when obtained or as held by the department or when the department first obtained it, and whether or not the information is part of the department’s official files or records. The term does not include:

(A)  the public portions of call reports of state banks and public trust companies;

(B)  the names of proposed directors of a de novo financial institution or an entity converting to a state financial institution;

(C)  information contained in an official document required to be filed with the department in order to have legal effect (Examples of such documents include, without limitation, Certificate of Amendment, Certificate of Merger, or Certificate of Conversion);

(D)  information contained in the portion of an application submitted to the department that has been designated as public by the applicant, department or a federal agency; or

(E)  information previously disclosed to the public by the person or entity to which the information relates.

(3)  Financial institution--As defined in the Finance Code, §31.002(a)(25). For purposes of this section only, the term includes a trust company incorporated under the Texas Trust Company Act, Finance Code, Chapters 181 et seq, or a predecessor statute, and a foreign bank branch, agency or representative office licensed under the Finance Code, Chapter 204 et seq.

(4)  Governmental agency--Another department of this state, another state, the United States, a foreign sovereign state, or any related agency or instrumentality.

(5)  Court--A court of law or equity or other adjudicatory tribunal with jurisdiction to issue a subpoena or other legal process for the production of documents, including a government agency exercising adjudicatory functions and an alternative dispute resolution mechanism, voluntary or required, under which a party may compel the production of documents.

(c)  Authority to receive, hold or disclose confidential information. Authority to disclose confidential information to an individual, business, or governmental agency under this section constitutes authority to disclose it to the appropriate person officially connected to such individual, business, or governmental agency that has a need to know the information in connection with the discharge of official responsibilities and authority for the person who is officially connected to such individual, business, or governmental agency to receive such information. A person officially connected to a financial institution includes its holding company, officer, director, manager, attorney, auditor, independent auditor, employee, and a person reasonably designated as officially connected with the financial institution by resolution duly adopted by the board of directors of the financial institution. A financial institution or its service provider, or affiliate may disclose confidential information, other than as specifically mentioned, to a non-employee, such as its agent, bonding company, or a prospective acquirer, only pursuant to board resolution designating the person or entity as officially connected with the financial institution, affiliate, or service provider. The financial institution, affiliate, or service provider may not disclose confidential information to a shareholder or participant that is specifically denied to such person under the Finance Code, §31.308. Only a person to whom confidential information has been released pursuant to lawful authority may disclose that information to another, and all such further disclosures must be in accordance with the Finance Code and this section.

(d)  Disclosure prohibited.

(1)  Pursuant to the Finance Code, §31.301, and Stewart v. McCain, 575 S.W.2d 509 (Tex. 1978), the department possesses an absolute privilege against disclosure of confidential information held by the department. Except as provided by the Finance Code, Title 3, Subtitle A, and rules adopted under the Finance Code, the finance commission, a member of the finance commission, the banking commissioner, or an employee or agent of the department may not directly or indirectly disclose confidential information, whether voluntarily or pursuant to subpoena or other legal process. Confidential information is discoverable from the department under this section only pursuant to a protective order under subsection (f) of this section in a case in which the department is a party other than as intervenor under this section. Pursuant to the Finance Code, §31.306, and notwithstanding any other provision of this section authorizing the release of confidential information, the banking commissioner may refuse to release information or records in the custody of the department if, in the opinion of the banking commissioner, release of the information or records might jeopardize an ongoing investigation by the department or other governmental agency of potentially unlawful activities.

(2)  Except as provided by the Finance Code, Title 3, Subtitle A, and this section, a financial institution, its service provider, or its affiliate may not disclose confidential information received from the department. Confidential information includes an examination report of, correspondence with, and formal and informal actions of the department taken against the financial institution, service provider, or affiliate.

(e)  Exceptions to non-disclosure.

(1)  Disclosures by the department. Confidential information disclosed by the department pursuant to an exception to disclosure remains the confidential property of the department. The department may:

(A)  disclose confidential information to the finance commission and other governmental agencies as provided by the Finance Code, §31.302 and §31.303;

(B)  publish final removal, prohibition, and cease-and-desist orders and information regarding the existence of a cease-and-desist order as provided by the Finance Code, §35.012;

(C)  release employment information as provided by the Finance Code, §31.307;

(D)  provide a copy of the regular report of examination and an order, opinion, or other confidential information to the financial institution, its service provider, or affiliate for which it was prepared and to which it relates and correspond with that financial institution, service provider, or affiliate regarding such information;

(E)  provide a copy of the regular report of examination of a service provider and an order, opinion, or other confidential information relating to the service provider to the financial institution or institutions it services;

(F)  forward to a court of proper jurisdiction, subject to any existing administrative protective order, the record of an administrative hearing under appeal that contains confidential information. In the event an administrative protective order does not exist, the department or another party shall file a motion with the court for a protective order consistent with the terms of subsection (f)(4) of this section prior to filing the administrative record. Discretion of the banking commissioner or finance commission to vacate an administrative protective order entered under §9.22 of this title (relating to Protective Orders; Motions to Compel) ceases at the time the appeal is filed;

(G)  provide complete copies of documents previously submitted to the department by a financial institution to the same financial institution or the successor financial institution upon request; and

(H)  provide certificates and certified copies upon request. The cost for a formal certificate issued by the department shall be $20.00 plus $1.00 per page for certified copies of pages attached to the certificate.

(2)  Further disclosure by a governmental agency, financial institution, service provider or affiliate. Except for disclosures pursuant to subsection (f) of this section, confidential information released to a financial institution, its service provider, or affiliate may be disclosed by the recipient only to a person officially connected to the recipient as provided by subsection (c) of this section and, if authorized under the terms of a confidentiality agreement between the department and another governmental agency, to that governmental agency in the discharge of its official duties. Disclosures to a person designated by board resolution as officially connected to the financial institution, service provider, or affiliate must be made pursuant to a confidentiality agreement between the financial institution, service provider, or affiliate and the recipient. Confidential information released to a governmental agency may be disclosed by the agency only to a person officially connected to the agency as provided by subsection (c) of this section or to another governmental agency to the extent authorized by this section or other law, and must be in accordance with the terms of this section and a confidentiality agreement with or letter of instructions from the department.

(3)  Disclosures of certain information.

(A)  Statistical data. Confidential information consisting solely of statistical data may be disclosed, providing its release does not directly or indirectly disclose the identity of an individual or financial institution related to the data.

(B)  Records of a failed financial institution. Subject to an appropriate finding of the banking commissioner under this subparagraph, the department may release confidential information in or related to the records of a failed financial institution. Release may not occur under this subparagraph earlier than three years after the date such financial institution failed. Information subject to release must pertain only to the condition of the financial institution and cannot include confidential customer information, absent customer consent, or information made confidential by laws other than the Finance Code, Title 3, Subtitle A, or this section. Confidential information, as limited herein, may be released if the banking commissioner, in the exercise of discretion, finds that:

(i)  production of records is neither overly burdensome nor contrary to the public interest;

(ii)  the need for the information clearly outweighs the need to maintain the confidentiality of the information; or

(iii)  a compelling need exists for release of the records.

(C)  Records of another governmental agency. Information the department has obtained from a federal or state governmental agency that is confidential under federal or state law or by agreement with the other agency is not considered part of the department’s records. The department may not release such information unless the request for release is submitted with a certification from the appropriate state or federal authority that the information is subject to release under the laws of that jurisdiction.

(f)  Discovery of confidential information from a governmental agency, financial institution, service provider, or affiliate.

(1)  General rule. A governmental agency, financial institution, service provider, or affiliate that receives a subpoena or other legal process in any proceeding for the release of confidential information shall promptly notify the department of the request, provide the department with a copy of the process and of the requested documents or information, and object by written motion or other means available under applicable rules of procedure. Notice and documents should be sent to the Texas Department of Banking at 2601 North Lamar Boulevard, Austin, Texas, 78705-4294, to the attention of the General Counsel, and should be labeled “Request for Release of Confidential Information under 7 TAC §3.111.” Prior to the release of confidential information, such government agency, financial institution, service provider, or affiliate also must file and obtain a ruling on a motion for a protective order and in camera inspection in accordance with this subsection. Confidential information may be released only pursuant to a protective order in a form consistent with that set out in this section and only if a court with jurisdiction has found that:

(A)  the party seeking the information has a substantial need for the information;

(B)  the information is directly relevant to the legal dispute in issue; and

(C)  the party seeking the information is unable without undue hardship to obtain its substantial equivalent by other means.

(2)  Discretionary filings by department. On receipt of notice under subsection (f)(1) of this section, the department may take action as may be appropriate to protect confidential information. The department has standing to intervene in a suit or administrative hearing for the purpose of filing a motion for protective order and in camera inspection in accordance with this subsection.

(3)  Motion for protective order and in camera inspection. The movant shall ask the court to enter a protective order in accordance with this subsection regarding the release of confidential information. If necessary to resolve a dispute regarding the confidential status or direct relevance of any information sought to be released, the party seeking the protective order shall move for in camera inspection of the pertinent information. Until subject to a protective order, confidential information may not be released, and the party seeking a protective order shall request the court officer to deny discovery of such confidential information. The party seeking the protective order must comply with the court’s applicable rules of procedure.

(4)  Protective order. A protective order obtained pursuant to the terms of this subsection must:

(A)  specifically bind each party to the litigation, including one who becomes a party to the suit after the protective order is entered, each attorney of record, and each person who becomes privy to the confidential information as a result of its disclosure under the terms of the protective order;

(B)  describe in general terms the confidential information to be produced;

(C)  state substantially the following in the body of the protective order:

(i)  absent court order to the contrary, only the court reporter and attorneys of record in the cause may copy confidential information produced under the protective order in whole or part;

(ii)  the attorneys of record are custodians responsible for all originals and copies of confidential information produced under the protective order and must insure that disclosure is limited to those persons specified in the protective order;

(iii)  confidential information subject to the protective order and all information derived therefrom may be used only for the purpose of the trial, appeal, or other proceedings in the case in which it is produced;

(iv)  confidential information to be filed or included in a filing in the case must be filed with the clerk separately in a sealed envelope bearing suitable identification, and is available only to the court and to those persons authorized by the order to receive confidential information, and all originals and copies made of such documents and records must be kept under seal and disclosed only in accordance with the terms of the protective order;

(v)  confidential information produced under to the protective order may be disclosed only to the following persons and only after counsel has explained the terms of the order to the person who will receive the information and provided that person with a copy of the order:

(I)  to a party and to an officer, employee, or representative of a party, to a party’s attorneys (including other members and associates of the respective law firms and contract attorneys in connection with work on the case) and, to the extent an attorney of record in good faith determines disclosure is necessary or appropriate for the conduct of the litigation, legal assistants, office clerks and secretaries working under that attorney’s supervision;

(II)  to a witness or potential witness in the case;

(III)  to an outside expert retained for consultation or for testimony, provided the expert agrees to be bound by the terms of the protective order and the party employing the expert agrees to be responsible for the compliance of its expert with this confidentiality obligation; and

(IV)  to the court or to an appellate officer or body with jurisdiction of an appeal in the case;

(vi)  at the request of the department or a party, only the court, the parties and their attorneys, and other persons the court reasonably determines should be present may attend the live testimony of a witness or discussions or oral arguments before the court that may include confidential information or relate to such confidential information. The parties shall request the court to instruct all persons present at such testimony, discussions, or arguments that release of confidential information is strictly forbidden;

(vii)  a transcript, including a deposition transcript, that may include confidential information subject to non-disclosure is subject to the protective order. The party requesting the testimony of a current or former department officer, employee, or agent shall, at its expense, furnish the department a copy of the transcript of the testimony once it has been transcribed.

(viii)  upon ultimate conclusion of the case by final judgment and the expiration of time to appeal, or by settlement or otherwise, counsel for each party shall return to the party that produced the confidential information all copies of every document subject to the protective order and for which the counsel is custodian; and

(ix)  production of documents subject to the protective order does not waive a claim of privilege or right to withhold the documents from a person not subject to the protective order.

(D)  Clauses (i), (ii), and (v)-(vii) of subparagraph (C) of this paragraph are subject to modification by the court for good cause before the conclusion of the proceeding, upon notice and opportunity to appear to the department.

Effective date: November 7, 2013, 38 TexReg 7684.