A court says the Australian Prudential Regulation Authority (APRA) does not have to hand over documents relating to the banking regulator's probe into the National Australia Bank's (NAB) exposure to US subprime mortgages.

Law firm Maurice Blackburn, which is representing NAB shareholders in a class action relating to NAB's heavy losses in 2008 over the US subprime home loans, is seeking the documents.

Justice Tony Pagone of the Supreme Court of Victoria ruled on Tuesday that federal legislation governing APRA gave the regulator the discretion to disclose protected information to another person.

Justice Pagone said in his judgement that whatever factors may be relevant for APRA to consider in deciding whether to give approval was not a matter for the proceeding at hand.

"What is significant, however, is that the legislature has sought fit to confer upon APRA the power to approve disclosure and production that is otherwise prohibited," Justice Pagone said.

"It is for APRA to decide whether to exercise the power, and there is nothing to suggest that the legislature intended that the power be exercised whenever a court issues a subpoena upon the application of a party."

APRA had objected to the production of documents sought by subpoena by some NAB shareholders.

The subpoena had required APRA to produce documents relating to meetings with NAB or the accounting firm Ernst & Young between January 1, 2008 and July 31, 2008 dealing with asset-backed commercial paper conduits sponsored by NAB.

A conduit is an entity that pools mortgages and other loans, which are sold as securities to investors.

Documents filed in the court earlier in September suggested that APRA believed that NAB's risk assessment of investments linked to toxic US subprime mortgages was insufficient.

An affidavit that had been tendered to the court referred to several internal NAB emails in which NAB executives noted criticism levelled at the bank by APRA.

Maurice Blackburn solicitor Jacob Varghese said on Tuesday that the law firm was now considering its options in relation to the production of documents.

However, the firm still believed that it had strong evidence to back its claims on behalf of NAB shareholders even without the documents that it was seeking from APRA.

"This was never `make or break' for the case," Mr Varghese told AAP.

"They (the documents) are important because they go to important issues, and we think they would have been helpful.

"But, we think we've got a very solid case on the other evidence."

NAB in 2006 bought $A1.2 billion of collateralised debt obligations (CDOs) that were heavily exposed to the US subprime residential mortgage market, which became toxic debt in 2007 and early 2008, according to the law firm.

NAB first made a $181 million provision for the CDO exposure in May 2008, then increased it to $1.1 billion, sending the company's share price plunging by nearly $6.00.

AAP tsc/jmc

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