WASHINGTON - Federal Reserve Board Governor Lawrence B. Lindsey said Tuesday that the Fed's examiners will not ask banks for self-testing information.
The Fed becomes the second agency to agree publicly to refrain from seeking self-testing information during investigations. The Justice Department made a similar pledge late last month, though the department did say it would seek self-testing data if a fair-lending case went to trial.
Mr. Lindsey said he hopes the Fed's action eases some banks' worries that they will incriminate themselves with self-tests.
"I think the right solution is legislation," Mr. Lindsey said. "But, the good solution here is to encourage self-testing."
The Fed governor's comment, which came during a brief interview following a fair-lending panel discussion at an American Bar Association conference here, makes it more difficult for litigants to subpoena test results.
William Sweet, a partner at Skadden, Arps, Meagher, Slate & Flom, said bankers now can claim the "self-assessment privilege," a legal doctrine that often keeps self-evaluations out of court.
If banks had turned this information over to the Fed, then they could not claim the privilege, Mr. Sweet said.
"It is a big step forward for the regulators," Mr. Sweet said of the policy.
But he said he still doesn't wholeheartedly embrace self-testing.
"We are still very concerned with self-testing because the Department of Justice reserves the right to use it during litigation," he said.
Edward Yingling, executive director of government relations at the American Bankers Association, agreed that the Fed's announcement was "helpful." But he said he is still concerned about self-testing.
"It is still fraught with danger," he said.
Congress must step in and pass a law preventing any litigant from using self-testing information, Mr. Yingling said.
Earlier, during the panel discussion, Roberta Achtenberg, assistant secretary at the Department of Housing and Urban Development, said she planned to sign later that day a "best practices" agreement with Inland Mortgage Corp.
Several mortgage companies have consented to similar agreements, which have required the institutions to set minority lending goals, and to gear marketing strategies toward minorities.
Mr. Lindsey said the industry should focus its fair-lending attention on expanding opportunities for minorities.
He also said he believes people categorize others by race, ethnicity, or other characteristics, a problem that regulations cannot solve.
"There is no amount of monitoring that will do more than people policing themselves," he said.
