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FIL-28-95 Attachment

[Federal Register: March 28, 1995 (Volume 60, Number 59)]

[Notices]

[Page 15923-15931]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]



 

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FEDERAL DEPOSIT INSURANCE CORPORATION


 

 

Intra-Agency Appellate Process


 

AGENCY: Federal Deposit Insurance Corporation.


 

ACTION: Notice of guidelines.


 

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SUMMARY: On March 21, 1995, the Board of Directors (Board) of the

Federal Deposit Insurance Corporation (FDIC) adopted guidelines for the

establishment of an independent intra-agency appellate process to

review material supervisory determinations as required by the Riegle

Community Development and Regulatory Improvement Act of 1994. The

guidelines were effective upon adoption and supersede the FDIC's

procedures for requesting review of supervisory determinations set

forth in FIL-11-92, dated February 7, 1992. The guidelines are intended

to clarify the types of determinations that are eligible for review and

establish the process by which appeals will be considered and decided.


 

DATES: The guidelines were effective on March 21, 1995.


 

FOR FURTHER INFORMATION CONTACT: William G. Hrindac, Examination

Specialist (202/898-6892), Division of Supervision; Ken A. Quincy,

Section Chief (202/942-3088), Division of Compliance and Consumer

Affairs; Gwen E. Factor, Counsel (202/898-8522), Legal Division,

Federal Deposit Insurance Corporation, 550 17th Street, N.W.,

Washington, D.C. 20429.


 

SUPPLEMENTARY INFORMATION:


 

Background


 

Section 309(a) of the Riegle Community Development and Regulatory

Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) (Act)

requires the FDIC (as well as the other Federal banking agencies and

the National Credit Union Administration Board) to establish an

independent intra-agency appellate process to review material

supervisory determinations. The process is to be established within 180

days after enactment of the Act (i.e., by March 22, 1995). The Act

defines the term ``independent appellate process'' to mean a review by

an agency official who does not directly or indirectly report to the

agency official who made the material supervisory determination under

review. In establishing the appeals process, the FDIC must ensure that:

(1) any appeal of a material supervisory determination by an insured

depository institution is heard and decided expeditiously; and (2)

appropriate safeguards exist for protecting the appellant from

retaliation by agency examiners.

Section 309(c) of the Act requires public notice and opportunity

for comment on proposed guidelines for the establishment of the

independent appellate process. On December 28, 1994, the FDIC published

in the Federal Register, for a 30-day comment period, a notice of and

request for comments on [[Page 15924]] proposed guidelines (59 Fed.

Reg. 66965). The comment period closed on January 27, 1995.


 

Discussion of Comments on Proposed Guidelines


 

The FDIC received 24 comment letters on the proposed guidelines,

including some after the close of the comment period. Fourteen were

from depository institutions, four from trade associations, one from a

State banking department, and five from other interested parties. The

comments generally supported the proposed guidelines, although various

suggestions and recommendations were made to revise the proposal. The

following is a discussion of the comments received on the proposal,

including those received after the close of the comment period.


 

A. Independent Appellate Process


 

The Act requires the FDIC to establish an independent appellate

process for the review of material supervisory determinations by an

agency official who does not directly or indirectly report to the

agency official who made the material supervisory determination under

review. To satisfy this requirement, the FDIC proposed to establish a

Supervision Appeals Review Committee consisting of the Vice Chairperson

as chair of the Committee, the Director of the Division of Supervision,

the Director of the Division of Compliance and Consumer Affairs, the

Ombudsman, and the General Counsel (or their designees) to consider and

decide appeals of material supervisory determinations.

Several commenters expressed concern regarding the composition of

the Committee, suggesting that a committee composed only of senior

regulators lacks balance and cannot be fair and unbiased. The FDIC does

not share this view and points out that a majority of the members of

the Committee are not directly responsible for the FDIC's supervision

or compliance activities and do not report to the individuals

responsible for those activities. Moreover, the Committee would include

the Ombudsman (who reports on all matters to the Chairperson) and the

Vice Chairperson. The FDIC believes, however, that the inclusion of

individuals who are knowledgeable and experienced in matters relating

to the FDIC's supervision and compliance activities--the Directors of

the Division of Supervision and the Division of Compliance and Consumer

Affairs--would bring to the Committee the necessary experience and

judgment to make well-informed decisions concerning determinations

under review. The FDIC is confident that the members of the Committee

can and will exercise their authority to review supervisory

determinations in a responsible and unbiased manner. The FDIC believes

that the long range interests of both the agency and the institutions

it supervises are best served by assuring that all supervisory

determinations (including appeals thereof) are as fair and accurate as

possible.

Several commenters suggested including on the Committee individuals

from outside the FDIC, such as representatives of the banking community

and other governmental agencies. The FDIC believes that the addition of

individuals from outside the FDIC not only is unnecessary to assure

that the appeals process is fair and unbiased but also would be

inappropriate. The addition of such individuals to the Committee would

not be consistent with the statutory mandate to establish an ``intra-

agency'' appeals process and could raise questions regarding the

disclosure of records and other information contained in or related to

examination, operating and other reports concerning an institution

(which are generally exempt from public disclosure).

The FDIC requested specific comment on whether the Vice Chairperson

should be included as a member of the Committee, even if it would mean

that occasionally he might need to recuse himself from participation in

a related enforcement action. Specific comment was also requested on

how the Committee might be structured if the Vice Chairperson were not

included. As discussed in the notice of proposed guidelines, the Vice

Chairperson may be involved in the consideration and disposition of

enforcement proceedings before the Board of Directors which, on

occasion, may involve matters considered by the Committee. While the

FDIC believes that the inclusion of the Vice Chairperson on the

Committee should lend credibility, fairness and balance to the appeals

process, it recognizes that the Vice Chairperson's participation in an

appeal of certain material supervisory determinations could give the

Vice Chairperson access to information which may not be part of the

administrative record of a factually related enforcement proceeding.

Although such a situation is unlikely to occur, if it does occur it may

be prudent for the Vice Chairperson to recuse himself from

participation in the related enforcement proceeding. Of the commenters

that addressed this aspect of the proposal, all supported including the

Vice Chairperson on the Committee, even if it would mean that

occasionally he might need to recuse himself from participation in a

related enforcement action. Commenters generally agreed that inclusion

of the Vice Chairperson on the Committee would lend credibility,

fairness and balance to the process.

One commenter suggested that the Committee has too much

``horsepower'' and that its members may have other, more pressing

matters to which they may need to attend. The FDIC is committed to

establishing a fair and credible review process and believes that the

proposed committee structure accomplishes that objective. The FDIC

recognizes, however, that at times some members of the Committee may

need to delegate their responsibility to serve on the Committee to a

senior member of their staff but believes that this in no way should

diminish the credibility, balance or fairness of the Committee or the

process.

In addition, many commenters expressed support for the proposed

composition and structure of the Committee. After considering all of

the comments on this aspect of the proposal, the FDIC continues to

believe that the proposed composition and structure of the Committee

not only satisfies the requirement of the Act to establish an

independent intra-agency appellate process but also lends credibility,

fairness and balance to the process. The FDIC therefore believes that

no change to this provision is necessary.


 

B. Institutions Eligible To Appeal


 

The Act requires that the FDIC's appeals process be available to

review material supervisory determinations made at insured depository

institutions that it supervises. The FDIC proposed that its appeals

process be available not only to the insured depository institutions

that it supervises (i.e., insured State nonmember banks (except

District banks) and insured branches of foreign banks) but also to

other insured depository institutions with respect to which it makes

material supervisory determinations. No commenters addressed this

aspect of the proposal. The FDIC therefore believes that no change to

this provision is necessary.


 

C. Material Supervisory Determinations


 

The Act requires the FDIC to establish an appeals process to review

material supervisory determinations. The term ``material supervisory

determinations'' is defined in the Act to include determinations

relating to: (1) examination ratings; (2) the adequacy of

[[Page 15925]] loan loss reserve provisions; and (3) loan

classifications on loans that are significant to an institution. The

Act specifically excludes from the definition of ``material supervisory

determinations'' a decision to appoint a conservator or receiver for an

insured depository institution or to take prompt corrective action

pursuant to section 38 of the Federal Deposit Insurance Act, 12 U.S.C.

1831o.

1. Examination Ratings

The FDIC proposed to construe the reference to ``examination

ratings'' to mean: (a) CAMEL ratings under the Uniform Financial

Institutions Rating System; (b) EDP ratings under the Uniform

Interagency Rating System for Data Processing Operations; (c) trust

ratings under the Uniform Interagency Trust Rating System; (d) CRA

ratings under the Revised Uniform Interagency Community Reinvestment

Act Assessment Rating System; (e) consumer compliance ratings under the

Uniform Interagency Consumer Compliance Rating System; (f) registered

transfer agent examination ratings; (g) government securities dealer

examination ratings; and (h) municipal securities dealer examination

ratings.

One commenter suggested that the proposed guidelines should be

clarified to specifically reference the composite CAMEL rating (which

is the rating revealed to an institution) as the rating eligible for

appeal since component CAMEL ratings are not revealed to an

institution. The FDIC believes that no change to this provision of the

proposed guidelines is necessary. Since component ratings are not

revealed to an institution, such ratings cannot be appealed regardless

of whether there is a specific reference in the guidelines to composite

ratings. The FDIC believes that the language of this provision is

consistent with its intent to permit any examination rating revealed to

an institution to be appealed.

2. Adequacy of Loan Loss Reserve Provisions

Since the Act defines material supervisory determinations to

include the adequacy of loan loss reserve provisions, the FDIC proposed

that such determinations be eligible for appeal. No commenters

addressed this aspect of the proposal. The FDIC therefore believes that

no change to this provision is necessary.

3. Loan Classifications

The Act defines material supervisory determinations to include

determinations relating to loan classifications on loans that are

significant to an institution. The FDIC proposed that classifications

of other assets that are significant to an institution should also be

eligible for appeal. In addition, the FDIC proposed that a classified

loan or other asset could be regarded as significant to an institution

if the amount of the loan or asset, individually or together with other

classified loans or assets, equals or exceeds 10 percent of the

institution's capital or 1 percent of its total assets.

A number of commenters suggested that the proposed guidelines were

not clear as to how the 10 percent of capital or 1 percent of assets

threshold may be reached on an aggregated basis. A few commenters noted

that, while a particular percentage may be significant for one

institution, it may not be significant for another institution

depending on the totality of the circumstances. Another commenter

suggested that there should be an ability to appeal not merely where

there is a specified percentage of the portfolio classified, but where

any classification has an adverse impact on the institution. In

consideration of the concerns expressed with respect to this aspect of

the proposal, the proposal has been revised to eliminate the 1 percent

of assets threshold and clarify that loan or other asset

classifications in dispute, individually or together with other

classified loans or assets in dispute, that exceed 10 percent of an

institution's total capital may be appealed. The FDIC believes that

capital is the more sensitive and critical measure and that such

measure should enable an institution to appeal classifications that

materially affect the institution. The FDIC further believes that

limiting loan and other asset classification appeals to those that

involve a significant level of classification (i.e., enough to be

material) is necessary not only to discourage insignificant or

unnecessary appeals but also to carry out the Act's intent that

classifications that have a significant impact on an institution be

eligible for appeal.

4. Determinations Not Eligible for Appeal

As provided in the Act, the term ``material supervisory

determinations'' does not include a decision to appoint a conservator

or receiver for an insured depository institution or to take prompt

corrective action pursuant to section 38 of the Federal Deposit

Insurance Act, 12 U.S.C. 1831o. The FDIC proposed that the term

``material supervisory determinations'' also should not include: (a)

determinations for which other appeals procedures exist (such as

determinations relating to deposit insurance assessment risk

classifications); (b) decisions to initiate formal enforcement actions

under section 8 of the Federal Deposit Insurance Act, 12 U.S.C. 1818

(including assessment of civil money penalties); (c) decisions to

initiate informal enforcement actions (such as memoranda of

understanding); (d) determinations relating to a violation of a statute

or regulation; and (e) any other determinations not specified in the

Act as being eligible for appeal.

A number of commenters suggested that these limitations were too

restrictive and pointed out that the statutory listing of material

supervisory determinations was merely illustrative and not intended to

be exhaustive. They also noted that the proposals of the other banking

agencies were not as restrictive as the FDIC's proposal. Upon further

consideration of the relevant statutory language, the FDIC now believes

that the proposal was unnecessarily restrictive as to the scope of

determinations eligible for appeal. Consequently, the FDIC has expanded

the scope of determinations that are eligible for appeal in two

significant respects.

First, determinations relating to a violation of a statute or

regulation that may impact the capital, earnings, or operating

flexibility of an institution, or otherwise affect the nature and level

of supervisory oversight accorded an institution are eligible for

appeal. The FDIC recognizes that interpretations of statutes or

regulations frequently are the subject of differing views between

examiners and the institution involved and such matters can have a

material effect on the institution and the supervisory treatment

accorded it. Review of such determinations is therefore consistent with

the Act's goal of ensuring review of material supervisory

determinations.

Second, instead of specifically excluding determinations not

specified in the Act as being ineligible for appeal, the FDIC has

created a catch-all category of other material supervisory

determinations that may be appealed. Such category includes any

determination (unless otherwise not eligible for appeal) that may

impact the capital, earnings, operating flexibility, or capital

category for prompt corrective action purposes of an institution, or

otherwise affect the nature and level of supervisory oversight accorded

an institution.

A number of commenters questioned the exclusion of decisions to

initiate formal or informal enforcement actions from the scope of

appealable determinations. A few commenters [[Page 15926]] recommended

that at least decisions to initiate informal enforcement actions should

be appealable. One commenter argued that, if a determination to

initiate an informal enforcement action was eligible for appeal, an

institution could avoid the cost and burden associated with such action

while an appeal is pending that could be resolved in the institution's

favor. While there is some merit to this view, the FDIC believes that

the possible abuse of the appeals process to delay or otherwise impede

well-founded enforcement actions outweighs the concerns expressed.

Moreover, appeals will be processed and decided expeditiously which the

FDIC believes should minimize any costs or other burdens to the

institution associated with an informal enforcement action.

One commenter questioned the exclusion of determinations relating

to deposit insurance assessment risk classifications. The FDIC

recognizes that such determinations may have a material impact on an

institution but points out that it has procedures in place (which are

set forth as an attachment to FIL-27-94, dated April 26, 1994) for

requesting review of deposit insurance assessment risk classifications.

Since the FDIC's role as deposit insurer is separate and distinct from

its role as supervisor, it believes that review of determinations

relating to deposit insurance assessment risk classifications should be

kept separate from review of supervisory determinations. The FDIC

believes that the current procedures for requesting review of deposit

insurance assessment risk classifications are sufficient and that

allowing parallel rights of appeal for such determinations would be

confusing, duplicative, and wasteful.

One commenter recommended that examiner criticisms of insider

related matters should be eligible for appeal, even in those instances

where small or no dollar amounts are involved. Since the appeals

process is designed to allow institutions to appeal material

supervisory determinations, the FDIC believes that insider related

matters that qualify as material supervisory determinations should be

eligible for appeal while those matters that do not qualify should not

be eligible for appeal.

A few commenters suggested that the provision in the proposed

guidelines regarding determinations not eligible for appeal be revised

to clarify that the underlying basis for a determination to take prompt

corrective action or initiate a formal or informal enforcement action

is appealable so long as it otherwise qualifies. The FDIC does not

intend to exclude from the appeals process such underlying

determinations so long as they are eligible for appeal. Based on these

comments, the FDIC has revised the proposal to clarify this issue.


 

D. Authority To Initiate Appeal


 

The FDIC proposed that an institution should not be permitted to

initiate an appeal of a material supervisory determination unless its

board of directors considered the merits of the appeal and authorized

that it be filed. This requirement was intended to assure that an

institution's board of directors not only had knowledge of a possible

appeal but also had an opportunity to consider its merits. The FDIC

noted in the proposed guidelines that such involvement by the board of

directors in the decision to initiate an appeal is consistent with its

responsibility to oversee the institution's management and may

discourage insignificant or unnecessary appeals. No commenters were

critical of this requirement. However, one commenter expressly stated

that such requirement should eliminate any frivolous appeals brought

because of a personality conflict between a senior officer and an

examiner. The FDIC therefore believes that no change to this aspect of

the proposal is necessary.


 

E. Effect on Supervisory or Enforcement Actions


 

Section 309(g) of the Act provides that ``[n]othing in ... section

[309] shall affect the authority of an appropriate Federal banking

agency or the National Credit Administration Board to take enforcement

or supervisory action.'' To reiterate this mandate as well as to

discourage any possible abuse of the appeals process, the FDIC proposed

that use of the appeals process by any institution should not affect,

delay, or impede any formal or informal supervisory or enforcement

action in progress or affect the FDIC's authority to take any

supervisory or enforcement action against an institution.

No commenters directly addressed this aspect of the proposal.

However, one commenter questioned whether there would be any adverse or

prejudicial effect on an institution involved in a formal enforcement

proceeding for failure to file an appeal of a related matter. That

commenter also questioned the extent to which a final decision made by

the Supervision Appeals Review Committee may be subject to collateral

attack or review by an administrative law judge in an administrative

enforcement action. The FDIC believes that the appeal process is not

intended to affect the rights of parties in connection with enforcement

proceedings.


 

F. Effect on Applications or Requests for Approval


 

The FDIC proposed that any application or request for approval made

to the FDIC by an institution that has appealed a material supervisory

determination which relates to or could affect the approval of the

application or request would not be considered until a final decision

concerning the appeal was made unless otherwise requested by the

institution. No commenters addressed this aspect of the proposal. The

FDIC therefore believes that no change to this provision is necessary.


 

G. Scope of Review


 

The FDIC proposed that the appropriate scope of review of any

material supervisory determination should be limited to the facts and

circumstances as they existed prior to or at the time the material

supervisory determination was made and that consideration should not be

given to any facts or circumstances that occur or corrective action

taken after the determination was made. No commenters questioned this

limitation, although one commenter requested that the proposed

guidelines be clarified to provide that the FDIC will consider facts

and circumstances that existed at the time the determination was made

but that may have been discovered or come to the attention of the FDIC

or the institution after such determination. The FDIC believes that

this is a useful clarification and has revised the proposed guidelines

accordingly. However, the FDIC cautions institutions not to introduce

or present information or arguments for the first time on appeal which

could have been introduced or presented to the on-site examiner and/or

appropriate Regional Office. While such information or arguments will

be considered on appeal, the introduction of such information or

arguments at a late date could impede the prompt and expeditious

resolution of disputes.


 

H. Review Procedures


 

The FDIC proposed that an institution could appeal any material

supervisory determination but it first should make a good faith effort

to resolve the dispute concerning the determination with the on-site

examiner and/or the appropriate Regional Office. The proposed

guidelines would have required that the on-site examiner and the

Regional Office promptly respond to any concerns raised by an

institution regarding a material supervisory determination. Several

commenters [[Page 15927]] incorrectly understood this provision to mean

that an institution must first attempt to resolve any disputed

determination with the on-site examiner and/or the appropriate Regional

Office before it may file an appeal. While the proposed guidelines

would have encouraged informal resolution of disputes, it was not

intended to make informal resolution a condition to the filing of an

appeal with the Washington Office. The FDIC therefore has revised the

proposed guidelines to make this clear.

The FDIC reiterated in the proposed guidelines that codification of

this appeals process was not intended to affect its longstanding

practice of affording institutions opportunities to express their views

and concerns throughout the examination/supervisory process.

Institutions are encouraged to discuss examination findings, loan loss

reserve provisions and classifications on loans and other assets during

on-site examinations as well as express any concerns to senior staff of

the appropriate Regional Office if a matter has not been resolved by

the on-site examiner. The FDIC continues to believe that an institution

is best served by raising questions or objections concerning an

examination when they arise through these informal processes rather

than after the close of an examination and the filing of an appeal.

The proposed guidelines would have required all appeals to the

Washington Office to be initiated within 60 days following the

institution's receipt of a report of examination containing a material

supervisory determination or other written communication of a material

supervisory determination. A few commenters suggested that the time

period in which an institution could file an appeal should be

shortened, while others suggested a longer period. However, one

commenter stated that the proposed time period was appropriate. The

FDIC has reconsidered this issue but, given the time necessary for an

institution to review findings, prepare a written appeal and obtain

board approval, continues to believe that the proposed time period is

appropriate.

To initiate an appeal, the FDIC proposed that the institution would

have to submit, in writing, to the Director of the Division of

Supervision, if the dispute was with a Division of Supervision on-site

examiner or Regional Office, or to the Director of the Division of

Compliance and Consumer Affairs, if the dispute was with a Division of

Compliance and Consumer Affairs on-site examiner or Regional Office, a

request for review. The request for review would have been required to

include: (a) a detailed description of the issues in dispute, the

surrounding circumstances, the institution's position regarding the

dispute and any arguments to support that position, and any good faith

effort to resolve the dispute with the on-site examiner and the

Regional Office and the results of that effort; and (b) a statement

that the institution's board of directors has considered the merits of

the appeal and authorized that it be filed. No commenters addressed

this aspect of the proposal. The FDIC therefore believes that no change

to this provision is necessary, other than to require that the request

for review include (in addition to the information listed in the

proposed guidelines) citation of any relevant statute, regulation,

policy statement or other authority to support the institution's

position regarding the dispute and how resolution of the dispute would

impact the institution and why such impact would be material.

The FDIC further proposed that the appropriate Division Director

could, in his or her discretion, promptly resolve the appeal in favor

of the institution or, if he or she could not resolve the appeal in

favor of the institution, must refer the appeal to the Supervision

Appeals Review Committee, together with the institution's request for

review and any other relevant information concerning the dispute. The

Supervision Appeals Review Committee (which was proposed to be

comprised of the Vice Chairperson, the Director of the Division of

Supervision, the Director of the Division of Compliance and Consumer

Affairs, the Ombudsman, and the General Counsel (or their designees))

would have reviewed the appeal for consistency with the policies,

practices and mission of the FDIC, including those of the Division of

Supervision or the Division of Compliance and Consumer Affairs, as

appropriate, and the overall reasonableness of and support offered for

the respective positions advanced, and notify the institution, in

writing, of its decision concerning the disputed material supervisory

determination within 60 days of receipt by the appropriate Division

Director of the institution's request for review. The proposed

guidelines would have required that the notice of decision contain at a

minimum an explanation of the factual basis as well as the reason(s)

for the decision and a statement that the decision constitutes the

final supervisory decision of the FDIC.

A few commenters suggested that the time period in which the FDIC

must consider and decide an appeal should be shortened. However, given

the time necessary to fully and fairly review an appeal and convene a

meeting of the Supervision Review Appeals Committee, the FDIC continues

to believe that the proposed time period is appropriate. One commenter

suggested that the proposal be revised to provide an institution with

the right to request an appearance before the Supervision Appeals

Review Committee to present evidence or otherwise support its position.

The FDIC agrees that an institution should have the right to request an

appearance before the Committee to present evidence or otherwise

support its position but believes that the Committee should have the

discretion, depending on the facts and circumstances of the

determination under appeal and whether such appearance would be

productive, to determine whether to allow such appearance.

The proposed guidelines would have required that, if sufficient

information was not provided to enable the Supervision Appeals Review

Committee to make a decision concerning the disputed material

supervisory determination, the 60-day period within which the Committee

must notify the institution of its decision would be extended upon

agreement of the institution for such additional time as it would take

the institution to provide the information requested by the Committee.

If the institution failed to provide the requested information, the

Committee could (but would not have been required to) consider and

decide the appeal on the information available. One commenter suggested

that this provision was unclear. The FDIC believes that this provision

is straightforward but explains that it was intended to allow the

Committee to extend the time in which it must issue a decision in order

to request and receive additional information from the institution.

Under the proposal, the institution could refuse to agree to the delay

or to provide the additional information, in which case the Committee

could decide the appeal on the existing record or consider the appeal

abandoned.

The FDIC proposed that the decision of the Supervision Appeals

Review Committee would constitute the final supervisory decision of the

FDIC and would not be eligible for further appeal pursuant to the

FDIC's appeals process unless new information was submitted. In such

case, the Committee could, in its discretion, reconsider the decision

concerning the disputed material supervisory determination if good

cause was shown why such new information [[Page 15928]] was material to

the dispute. No commenters directly addressed this aspect of the

proposal.

A few commenters suggested that an institution's position with

respect to a determination under review should prevail if the FDIC

fails to notify the institution of its decision within 60 days of

receipt by the appropriate Division Director of the institution's

request for review. The FDIC believes that appeals should be decided on

their merits and not as a result of a failure to meet a time deadline.

Nevertheless, the FDIC pledges to make every effort to decide an appeal

and notify the institution of its decision within the 60-day time

period. If, however, the institution believes that the FDIC has not

acted in good faith to decide an appeal and notify the institution of

its decision within this time period, it may request that the Ombudsman

investigate or otherwise intervene in the matter.

One commenter suggested that the proposed guidelines be revised to

address how records are to be expunged when a determination (that is

part of an examination report or other written communication) is

subsequently reversed through the appeals process. The FDIC is not

convinced that a determination which is reversed through the appeals

process needs to be expunged from the record. The FDIC believes that

there is little risk that a subsequent reviewer of the institution's

record will overlook the reversal and consider the determination as

part of the record in its dealings with the institution.


 

I. Limitation of Use of Agency Ombudsman


 

Section 309(d) of the Act requires the FDIC to appoint an Ombudsman

to act as a liaison with respect to any problem that any person may

have in dealing with the FDIC resulting from its regulatory activities.

The FDIC proposed that, in order to preserve the integrity of the

appeals process, the merits of any material supervisory determination

for which an appeal had been initiated or a final decision made should

not be eligible for consideration by the Ombudsman. The FDIC also

proposed, however, that the Ombudsman should not be prohibited from

considering any other problems that an institution may have in dealing

with the FDIC in connection with its appeals process, including

consideration of the overall fairness, efficiency or effectiveness of

the process.

A few commenters suggested that the Ombudsman should have the

opportunity to consider and decide appeals outside the structure of the

Supervision Appeals Review Committee. The FDIC believes that a

committee approach, which brings together the experience and judgment

of a variety of individuals from different disciplines (including the

Ombudsman), is more likely to produce fair and sound results for both

the institution involved and the FDIC than a process in which a single

individual (such as the Ombudsman) alone considers and decides appeals.

Moreover, as a member of the Supervision Appeals Review Committee, the

Ombudsman will consider and participate in all appeals.


 

J. Coordination With State Regulatory Authorities


 

Two commenters suggested that the proposed guidelines should be

revised to require that the FDIC coordinate with the appropriate State

regulatory authority with respect to the appeal of a material

supervisory determination that is the joint product of the FDIC and the

State regulatory authority. These commenters also suggested that a

representative of the appropriate State regulatory authority should sit

on the Supervision Appeals Review Committee. The FDIC believes that

such coordination is necessary but does not believe that a

representative of the appropriate State regulatory authority should sit

on the Committee. The FDIC believes that the inclusion of a

representative of a State regulatory authority on the Committee would

not be consistent with the statutory mandate to establish an ``intra-

agency'' appeals process. However, to provide for coordination with

State regulatory authorities with respect to the appeal of a joint

material supervisory determination, the FDIC has revised the proposal

to specifically require that the appropriate Division Director promptly

notify the appropriate State regulatory authority of any appeal of a

joint supervisory determination as well as to provide the regulatory

authority with a copy of the institution's request for review and any

other related materials and solicit the regulatory authority's views

regarding the merits of the appeal before making a final decision. That

Director will present the views of the regulatory authority (as well as

his or her own views) before the Committee and attempt to reconcile the

views of the regulatory authority with the views of the Committee. The

Committee will notify the institution and the State regulatory

authority of its decision and any differences remaining between the

institution and the State authority will be left to those parties to

resolve.


 

K. Prohibition on Examiner Retaliation


 

The FDIC proposed that any retaliation, abuse, or retribution by an

agency examiner against an institution that appeals a material

supervisory determination would constitute unprofessional conduct and

should subject the examiner to appropriate disciplinary or remedial

action by the appropriate Division Director. Under the proposed

guidelines, such disciplinary or remedial action could have included

oral or written warning or admonishment, reprimand, or suspension, or

change in assigned duties or disqualification from a particular

assignment or a particular matter, including prohibition from

participating in any examination of the institution that was the

subject of the retaliation, abuse, or retribution.

A few commenters suggested that the proposed guidelines be

clarified to provide who an institution may contact in the event it

believes or has any evidence that it has been subject to examiner

retaliation. Other commenters suggested that the role of the Ombudsman

should be expanded to include receiving, monitoring, and investigating

complaints of examiner retaliation. The FDIC believes that the

Ombudsman should be permitted to receive and investigate complaints of

examiner retaliation as well as make recommendations to the appropriate

Division Director for corrective action. The FDIC therefore has revised

the proposed guidelines to provide that any institution that believes

or has any evidence that it has been subject to examiner retaliation

may file a complaint with the Ombudsman and/or the appropriate Division

Director, Federal Deposit Insurance Corporation, 550 17th Street,

Washington, D.C. 20429, explaining the circumstances and the basis for

such belief or evidence and requesting that the complaint be

investigated and appropriate disciplinary or remedial action taken.

Other commenters suggested that the FDIC should contact every

institution that files an appeal at various intervals after the appeal

to inquire as to whether the institution believes or has any evidence

that it has been subject to examiner retaliation. The FDIC does not

believe that routine follow-up inquiries would be useful or productive

in every case in which an institution has filed an appeal.

Consequently, the FDIC will rely on complaints of examiner retaliation

that it receives from institutions to monitor and investigate such

activity.

One commenter suggested that the prohibition against examiner

retaliation should be extended to cover all Regional

[[Page 15929]] Office personnel. The FDIC believes that retaliation by

any employee at any level constitutes unprofessional conduct and should

subject the employee to appropriate disciplinary or remedial action.

Accordingly, the FDIC has revised the proposed guidelines to make clear

that the prohibition on retaliation extends to all personnel, including

Regional and Washington Office personnel.

For the reasons set out in the Preamble, the Board has adopted the

Guidelines for Review of Material Supervisory Determinations as set

forth below.


 

Guidelines for Appeals of Material Supervisory Determinations


 

A. Introduction


 

Section 309(a) of the Riegle Community Development and Regulatory

Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) (Act)

requires the Federal Deposit Insurance Corporation (FDIC) to establish

an independent intra-agency appellate process to review material

supervisory determinations made at insured depository institutions that

it supervises. The FDIC has adopted these Guidelines for Appeals of

Material Supervisory Determinations (Guidelines) in accordance with the

Act. The Guidelines describe the types of determinations that are

eligible for review and the process by which appeals will be considered

and decided.


 

B. Independent Appellate Process


 

The procedures set forth in these Guidelines establish an appeals

process for the review of material supervisory determinations by a

supervisory appeals review committee consisting of the Vice

Chairperson, the Director of the Division of Supervision, the Director

of the Division of Compliance and Consumer Affairs, the Ombudsman, and

the General Counsel (or their designees).


 

C. Institutions Eligible to Appeal


 

These Guidelines apply not only to the insured depository

institutions that the FDIC supervises (i.e., insured State nonmember

banks (except District banks) and insured branches of foreign banks)

but also to other insured depository institutions with respect to which

the FDIC makes material supervisory determinations.


 

D. Material Supervisory Determinations


 

1. Determinations Eligible for Appeal

An institution may appeal any material supervisory determination

pursuant to the procedures set forth in these Guidelines. Material

supervisory determinations mean:

(a) CAMEL ratings under the Uniform Financial Institutions Rating

System;

(b) EDP ratings under the Uniform Interagency Rating System for

Data Processing Operations;

(c) trust ratings under the Uniform Interagency Trust Rating

System;

(d) CRA ratings under the Revised Uniform Interagency Community

Reinvestment Act Assessment Rating System;

(e) consumer compliance ratings under the Uniform Interagency

Consumer Compliance Rating System;

(f) registered transfer agent examination ratings;

(g) government securities dealer examination ratings;

(h) municipal securities dealer examination ratings;

(i) determinations relating to the adequacy of loan loss reserve

provisions;

(j) classifications of loans and other assets in dispute the amount

of which, individually or in the aggregate, exceed 10 percent of an

institution's total capital;

(k) determinations relating to violations of a statute or

regulation that may impact the capital, earnings, or operating

flexibility of an institution, or otherwise affect the nature and level

of supervisory oversight accorded an institution; and

(l) any other supervisory determination (unless otherwise not

eligible for appeal) that may impact the capital, earnings, operating

flexibility, or capital category for prompt corrective action purposes

of an institution, or otherwise affect the nature and level of

supervisory oversight accorded an institution.

2. Determinations Not Eligible for Appeal

Material supervisory determinations do not include: (a) decisions

to appoint a conservator or receiver for an insured depository

institution; (b) decisions to take prompt corrective action pursuant to

section 38 of the Federal Deposit Insurance Act, 12 U.S.C. 1831o; (c)

determinations for which other appeals procedures exist (such as

determinations relating to deposit insurance assessment risk

classifications); (d) decisions to initiate formal enforcement actions

under section 8 of the Federal Deposit Insurance Act, 12 U.S.C. 1818

(including assessment of civil money penalties) or under any other

provisions of law or regulation; and (e) decisions to initiate informal

enforcement actions (such as memoranda of understanding). The FDIC

recognizes that, although determinations to take prompt corrective

action or initiate formal or informal enforcement actions are not

appealable, the determinations upon which such actions may be based

(e.g., loan classifications) are appealable provided they otherwise

qualify.


 

E. Authority to Initiate Appeals


 

An institution may not initiate an appeal of a material supervisory

determination pursuant to the procedures set forth in these Guidelines

unless its board of directors has considered the merits of the appeal

and authorized that it be filed.


 

F. Effect on Supervisory or Enforcement Actions


 

The use of the procedures set forth in these Guidelines by any

institution will not affect, delay, or impede any formal or informal

supervisory or enforcement action in progress or affect the FDIC's

authority to take any supervisory or enforcement action against that

institution.


 

G. Effect on Applications or Requests for Approval


 

Any application or request for approval made to the FDIC by an

institution that has appealed a material supervisory determination

which relates to or could affect the approval of the application or

request will not be considered until a final decision concerning the

appeal is made unless otherwise requested by the institution.


 

H. Scope of Review


 

The scope of review of any material supervisory determination

pursuant to the procedures set forth in these Guidelines is limited to

the facts and circumstances as they existed prior to or at the time the

material supervisory determination was made and no consideration will

be given to any facts or circumstances that occur or corrective action

taken after the determination was made. However, the FDIC will consider

any facts or circumstances that existed prior to or at the time the

determination was made but that may have been discovered or come to the

attention of the FDIC or the institution after such determination.


 

I. Review Procedures


 

An institution may appeal any material supervisory determination

but it first should make a good faith effort to resolve the dispute

concerning the determination with the on-site examiner and/or the

appropriate Regional Office. The on-site examiner and the Regional

Office are expected to promptly respond [[Page 15930]] to any concerns

raised by an institution regarding a material supervisory

determination. If an institution is unable to resolve the dispute with

the on-site examiner or the Regional Office, it may appeal the

determination to the Washington Office. While informal resolution of

disputes is encouraged, it is not a condition to the filing of an

appeal with the Washington Office.

All appeals to the Washington Office must be initiated within 60

days following the institution's receipt of a report of examination

containing a material supervisory determination or other written

communication of a material supervisory determination. To initiate an

appeal, the institution must submit, in writing, to the Director of the

Division of Supervision, if the institution was unable to resolve the

dispute with a Division of Supervision on-site examiner or Regional

Office, or to the Director of the Division of Compliance and Consumer

Affairs, if the institution was unable to resolve the dispute with a

Division of Compliance and Consumer Affairs on-site examiner or

Regional Office, a request for review. The request for review should

include: (a) a detailed description of the issues in dispute, the

surrounding circumstances, the institution's position regarding the

dispute and any arguments to support that position (including citation

of any relevant statute, regulation, policy statement or other

authority), how resolution of the dispute would impact the institution

and why such impact would be material, and the good faith effort to

resolve the dispute with the on-site examiner and the Regional Office

and the results of that effort; and (b) a statement that the

institution's board of directors has considered the merits of the

appeal and authorized that it be filed.

The appropriate Division Director may, in his or her discretion,

promptly resolve the appeal in favor of the institution or, if he or

she cannot resolve the appeal in favor of the institution, will refer

the appeal to the Supervision Appeals Review Committee, together with

the institution's request for review and any other relevant information

concerning the dispute. The Supervision Appeals Review Committee (which

is comprised of the Vice Chairperson, the Director of the Division of

Supervision, the Director of the Division of Compliance and Consumer

Affairs, the Ombudsman, and the General Counsel (or their designees))

will review the appeal for consistency with the policies, practices and

mission of the FDIC, including those of the Division of Supervision or

the Division of Compliance and Consumer Affairs, as appropriate, and

the overall reasonableness of and the support offered for the

respective positions advanced, and notify the institution, in writing,

of its decision concerning the disputed material supervisory

determination within 60 days of receipt by the appropriate Division

Director of the institution's request for review. The notice of

decision must contain at a minimum an explanation of the factual basis

as well as the reason(s) for the decision and a statement that the

decision constitutes the final supervisory decision of the FDIC.

The institution may request an appearance before the Supervision

Appeals Review Committee to present evidence or otherwise support its

position. The Committee may in its discretion, depending on the facts

and circumstances of the determination under appeal and whether such

appearance would be productive, determine whether to allow such

appearance.

If sufficient information is not provided to enable the Supervision

Appeals Review Committee to make a decision concerning the disputed

material supervisory determination, the 60-day period within which the

Committee must notify the institution of the decision will be extended

upon agreement of the institution for such additional time as it takes

the institution to provide the information requested by the Committee.

If the institution fails to provide the requested information, the

Committee may but will not be required to consider and decide the

appeal. Moreover, if the FDIC fails to notify the institution of its

decision within 60 days of receipt by the appropriate Division Director

of the institution's request for review, the institution may request

that the Ombudsman investigate or otherwise intervene in the matter.

The decision of the Supervision Appeals Review Committee will

constitute the final supervisory decision of the FDIC and will not be

eligible for further appeal pursuant to the procedures set forth in

these Guidelines unless new information is submitted. In such case, the

Committee may, in its discretion, reconsider the decision concerning

the disputed material supervisory determination if good cause is shown

why such new information is material to the dispute.


 

J. Limitation on Use of Agency Ombudsman


 

The merits of any material supervisory determination for which an

appeal has been initiated or a final decision made will not be eligible

for consideration by the Ombudsman (except in his or her capacity as a

member of the Supervision Appeals Review Committee). Any other

problems, however, that an institution may have in dealing with the

FDIC in connection with the procedures set forth in these Guidelines

are eligible for consideration by the Ombudsman, including

consideration of the overall fairness, efficiency or effectiveness of

the process.


 

K. Coordination With State Regulatory Authorities


 

In the event that a material supervisory determination under appeal

is the joint product of the FDIC and a State regulatory authority, the

appropriate Division Director will promptly notify the appropriate

State regulatory authority of the appeal, provide to the regulatory

authority a copy of the institution's request for review and any other

related materials, and solicit the regulatory authority's views

regarding the merits of the appeal before making a final decision. That

Director will present the views of the regulatory authority (as well as

his or her own views) before the Supervision Appeals Review Committee

and attempt to reconcile the views of the regulatory authority with the

views of the Supervision Appeals Review Committee. The Supervision

Appeals Review Committee will notify the institution and the State

regulatory authority of its decision and any differences remaining

between the institution and the State authority will be left to those

parties to resolve.


 

L. Prohibition on Examiner Retaliation


 

Any retaliation, abuse, or retribution by an agency examiner or any

FDIC personnel against an institution that appeals a material

supervisory determination constitutes unprofessional conduct and will

subject the examiner or other personnel to appropriate disciplinary or

remedial action by the appropriate Division Director. Such disciplinary

or remedial action may include oral or written warning or admonishment,

reprimand, or suspension, or change in assigned duties or

disqualification from a particular assignment or a particular matter,

including prohibition from participating in any examination of the

institution that was the subject of the retaliation, abuse, or

retribution. Any institution that believes or has any evidence that it

has been subject to retaliation may file a complaint with the Ombudsman

and/or the appropriate Division Director, Federal Deposit Insurance

Corporation, 550 17th Street, [[Page 15931]] Washington, D.C. 20429,

explaining the circumstances and the basis for such belief or evidence

and requesting that the complaint be investigated and appropriate

disciplinary or remedial action taken.


 

By order of the Board of Directors.


 

Dated at Washington, D.C. this 21st day of March, 1995.


 

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Acting Executive Secretary.

[FR Doc. 95-7523 Filed 3-27-95; 8:45 am]

BILLING CODE 6714-01-P

Last Updated: March 24, 2024