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Notice2022-22946

Guidelines for Appeals of Material Supervisory Determinations

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Published

October 21, 2022

Issuing agencies

Federal Deposit Insurance Corporation

Abstract

The Federal Deposit Insurance Corporation proposes to amend its Guidelines for Appeals of Material Supervisory Determinations, expanding and clarifying the role of the agency's Ombudsman. The proposal also would require that materials considered by the Supervision Appeals Review Committee be shared with both parties to the appeal, subject to applicable legal limitations on disclosure, and would allow insured depository institutions to request a stay of a material supervisory determination while an appeal is pending.

Full Text

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<title>Federal Register, Volume 87 Issue 203 (Friday, October 21, 2022)</title>
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[Federal Register Volume 87, Number 203 (Friday, October 21, 2022)]
[Notices]
[Pages 64034-64042]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22946]

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FEDERAL DEPOSIT INSURANCE CORPORATION

RIN 3064-ZA20

Guidelines for Appeals of Material Supervisory Determinations

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice and request for comment.

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SUMMARY: The Federal Deposit Insurance Corporation proposes to amend
its Guidelines for Appeals of Material Supervisory Determinations,
expanding and clarifying the role of the agency's Ombudsman. The
proposal also would require that materials considered by the
Supervision Appeals Review Committee be shared with both parties to the
appeal, subject to applicable legal limitations on disclosure, and
would allow insured depository institutions to request a stay of a
material supervisory determination while an appeal is pending.

DATES: Written comments must be received by the FDIC on or before
November 21, 2022 for consideration.

ADDRESSES: Interested parties are invited to submit written comments,
identified by RIN 3064-ZA20, by any of the following methods:
<bullet> Agency Website: <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>. Follow the instructions for
submitting comments.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#086b6765656d667c7b484e4c414b266f677e">[email&#160;protected]</a>. Include ``Guidelines for Appeals
of Material Supervisory Determinations--RIN 3064-ZA20'' in the subject
line of the message.
<bullet> Mail: James P. Sheesley, Assistant Executive Secretary,
Attention: Comments--RIN 3064-ZA20, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
<bullet> Hand Delivery/Courier: Guard station at the rear of the
550 17th Street NW building (located on F Street NW) on business days
between 7:00 a.m. and 5:00 p.m. (EST).
<bullet> Public Inspection: Comments received, including any
personal information provided, may be posted without change to <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>.
Commenters should submit only information that the commenter wishes to
make available publicly. The FDIC may review, redact, or refrain from
posting all or any portion of any comment that it may deem to be
inappropriate for publication, such as irrelevant or obscene material.
The FDIC may post only a single representative example of identical or
substantially identical comments, and in such cases will generally
identify the number of identical or substantially identical comments
represented by the posted example. All comments that have been
redacted, as well as those that have not been posted, that contain
comments on the merits of this notice will be retained in the public
comment file and will be considered as required under all

[[Page 64035]]

applicable laws. All comments may be accessible under the Freedom of
Information Act.

FOR FURTHER INFORMATION CONTACT: Sheikha Kapoor, Senior Counsel, Legal
Division, 202-898-3960, <a href="/cdn-cgi/l/email-protection#d5a6beb4a5babaa795b3b1bcb6fbb2baa3">[email&#160;protected]</a>; James Watts, Counsel, Legal
Division, 202-898-6678, <a href="/cdn-cgi/l/email-protection#2f45584e5b5b5c6f494b464c01484059">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION: The Federal Deposit Insurance Corporation
(FDIC) is proposing to amend its Guidelines for Appeals of Material
Supervisory Determinations (Guidelines), expanding and clarifying the
role of the FDIC's Ombudsman in the supervisory appeals process. The
FDIC is proposing to add the Ombudsman to the Supervision Appeals
Review Committee (SARC) as a non-voting member. This is intended to
further balance the perspectives reflected in the composition of the
SARC, as the Ombudsman is independent of the supervision function and
has experience in resolving disputes between insured depository
institutions (IDIs) and the FDIC. In addition, the Ombudsman would
monitor the supervision process following an institution's submission
of an appeal under the Guidelines. The proposal also would require
materials considered by the SARC to be shared with both parties to the
appeal, subject to applicable legal limitations on disclosure and
oversight by the Ombudsman, and would allow IDIs to request a stay of a
material supervisory determination while an appeal is pending.

I. Background

Section 309(a) of the Riegle Community Development and Regulatory
Improvement Act of 1994 (Riegle Act) required the FDIC (as well as the
other Federal banking agencies and the National Credit Union
Administration) to establish an ``independent intra-agency appellate
process'' to review material supervisory determinations.\1\ The statute
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.'' \2\ In the appeals process, the FDIC is required to ensure
that: (1) an IDI's appeal of a material supervisory determination is
heard and decided expeditiously; and (2) appropriate safeguards exist
for protecting appellants from retaliation by agency examiners.\3\
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\1\ 12 U.S.C. 4806(a).
\2\ 12 U.S.C. 4806(f)(2).
\3\ 12 U.S.C. 4806(b).
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In 1995, the FDIC adopted Guidelines for Appeals of Material
Supervisory Determinations to implement section 309(a). At that time,
the FDIC's Board of Directors established the SARC to consider and
decide appeals of material supervisory determinations.\4\ The Board has
modified the composition of the SARC over the years, but as of 2021,
the SARC included: one inside member of the FDIC's Board of Directors
(serving as Chairperson); one deputy or special assistant to each of
the other inside Board members; and the General Counsel as a non-voting
member.
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\4\ 60 FR 15923 (Mar. 28, 1995).
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In January 2021, the FDIC adopted Guidelines that replaced the SARC
as the final level of review in the appellate process with a standalone
office within the FDIC, designated the Office of Supervisory Appeals
(Office).\5\ After appealing a material supervisory determination to
the relevant Division Director, an IDI would have had the option to
appeal to the Office. If a material supervisory determination was
appealed to the Office, a three- or five-member panel of reviewing
officials would consider the appeal and issue a written decision to the
IDI. The Guidelines did not provide for additional review beyond the
Office.
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\5\ 86 FR 6880 (Jan. 25, 2021).
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Earlier this year, the FDIC revised the Guidelines by restoring the
SARC as the final level of review of material supervisory
determinations made by the FDIC.\6\ The revised Guidelines
reconstituted the SARC as it existed in 2021. The FDIC decided to
restore the SARC based on the agency's longstanding practice of
ensuring Board-level review of material supervisory determinations,
noting that this promotes both independence and accountability in the
appellate process. Board-level review ensures accountability for the
FDIC's supervisory determinations remains with the FDIC's Board of
Directors, consistent with sound corporate governance principles. In
addition, the FDIC noted that restoring the SARC structure addressed
certain staffing concerns inherent in the Office's structure that
threatened to hinder the effectiveness of the appellate process going
forward.
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\6\ 87 FR 30942 (May 20, 2022).
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The revised Guidelines also included procedural changes to reflect
the restoration of the SARC structure, such as granting specific
authorities to the SARC Chairperson. The FDIC also eliminated a
provision that had been added specifically to accommodate an
independent Office of Supervisory Appeals, which required
communications between the Office and either supervisory staff or the
appealing IDI, including materials submitted to the Office for review,
to be shared with the other party to the appeal.
While the revised Guidelines were effective on May 17, 2022, the
FDIC invited comments on all aspects of the revised Guidelines. The
FDIC specifically asked for comments regarding the inclusion of the
Ombudsman's perspective in the supervisory appeals process and for
other ways to enhance the process while remaining consistent with the
Ombudsman's role as a neutral liaison between supervised IDIs and the
FDIC. The comment period closed on June 21, 2022.

II. Discussion of Comments

The FDIC received comment letters from a think tank, a financial
holding company, a trade association, and a joint comment letter from
six trade associations. The commenters raised a number of concerns with
the restoration of the SARC structure. A commenter also raised concerns
with the standard of review for SARC decisions and recommended a stay
of supervisory actions while an appeal is pending. These comments are
discussed in further detail below.

Restoration of SARC Structure

Commenters generally disagreed with the restoration of the SARC
structure and the FDIC's conclusion that this would enhance the
independence of the appellate process. A think tank indicated that the
return to the SARC structure would not further the independence of
decision making because SARC members, as FDIC leadership, have an
ongoing relationship with supervisory staff and must show trust and
support for the same staff whose judgment is being questioned. The
commenter further stated that if FDIC board members are setting the
agency's regulatory and supervisory tone, they could find themselves
questioning their own policy initiatives. Along these same lines, a
trade association indicated that the appellate process will be less
independent if the FDIC's Board has control over the outcome.
Commenters also raised the concern that the SARC structure may not
provide the intended balancing of perspectives, given the current
composition of the FDIC's Board. The commenters noted that Congress

[[Page 64036]]

provided for a bipartisan Board of five Senate-confirmed members, but
the FDIC's Board is currently comprised of an acting Chairman and two
outside members, all from the same political party.
Some commenters recommended that the FDIC restore the Office of
Supervisory Appeals. These commenters believed that the Office of
Supervisory Appeals provided for greater independence in decision-
making and that inspired confidence on the part of supervised
institutions. These commenters also raised concerns with the process
used to restore the SARC structure, noting that the FDIC has
historically modified the Guidelines after soliciting comment. A joint
comment letter from several trade associations stated that the FDIC did
not sufficiently explain why the Office of Supervisory Appeals
structure could or should no longer function. The comment further
stated that the FDIC should have considered alternative solutions if
staffing the Office of Supervisory Appeals was an issue.

Ombudsman's Role

As noted above, the FDIC solicited comment on including the
Ombudsman's perspective in the supervisory appeals process and ways to
enhance the process while remaining consistent with the Ombudsman's
role as a neutral liaison between IDIs and the FDIC. Commenters
supported expanding the Ombudsman's role in the appeals process. A
trade association stated that it was a strong proponent of the FDIC's
Office of the Ombudsman, explaining that Ombudsmen are experienced
professionals specifically trained in resolving disputes between
bankers and regulators. The commenter further stated that the Ombudsmen
advocate for a fair and impartial process at the FDIC, are most
familiar with both sides of the dispute, and would be a valuable source
of information that would benefit appeals panel discussions. The
commenter ``strongly urge[d] the role of the Ombudsmen be clarified and
expanded.'' A financial holding company also contrasted the FDIC's
appellate process with that of the OCC, noting that the OCC allows
national banks to appeal disputes directly to an Ombudsman who operates
independently from the supervision process and reports directly to the
head of the agency.

Communications

The revised Guidelines eliminated a provision that was added
specifically to accommodate the Office of Supervisory Appeals. This
provision required that any communications between the Office and
supervisory staff be in writing and shared with an appealing IDI,
subject to limitations on disclosure. Commenters stated that the
requirement to share ex parte information with both parties is a
fundamental right to assure that both parties are aware of the
information shared with the decision-maker and have an opportunity to
respond to that information. Another commenter stated that the FDIC's
elimination of this provision rendered the appeals process less
effective, suggesting that it is a reason banks do not utilize the
appeals process.

Standard of Review

A commenter recommended that the FDIC adopt a de novo standard of
review, asserting that this would be consistent with the standard
adopted by the Board of Governors of the Federal Reserve System in its
supervisory appeals process. The commenter stated that no deference
should apply to an examiner's interpretation of the law or factual
findings, and explained that a more robust de novo standard of review
would increase institutions' confidence in the process.

Stay of Material Supervisory Determinations

A financial holding company recommended that the FDIC stay
supervisory actions during an appeal because supervisory determinations
can have consequences for an institution, such as removing an
institution from expedited processing of applications. The commenter
stated that the FDIC should at least implement a mechanism whereby a
bank could be relieved of such burdens while an appeal is pending. The
commenter noted that the OCC's process allows the Ombudsman or the
appropriate OCC official, upon written request of the bank, to relieve
the bank of an obligation to comply with a supervisory decision or
action while an appeal is pending.\7\
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\7\ See OCC Bulletin 2013-15.
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III. Proposed Guidelines

The FDIC appreciates the comments and further recommendations to
enhance the informal appellate process consistent with the statute.
Based on these recommendations, the FDIC is proposing to further amend
the Guidelines to address commenters' concerns, as discussed in further
detail below.

SARC Structure

Review of material supervisory determinations by a Board-level
committee such as the SARC promotes greater accountability in the
supervisory appeals process. Ultimate responsibility for the FDIC's
supervision function is vested in the agency's Board of Directors by
statute, and the SARC structure ensures that the Board remains
accountable for the agency's supervisory determinations. Accordingly,
the FDIC's longstanding practice has been to ensure Board-level review
of material supervisory determinations with a panel also including
other senior officials. The Guidelines governing the Office allowed for
reliance on individuals with previous supervisory experience recruited
from outside the FDIC and hired for intermittent service on a time-
limited contract basis to make final supervisory determinations on
behalf of the FDIC.
Hiring individuals from outside the agency represented a
significant departure from the FDIC's established approach for over 25
years of reliance on a Board-level committee and undermines
accountability for these supervisory determinations. Moreover, it is
fundamentally inconsistent with how the other financial regulators have
carried out their responsibilities under the Riegle Act. While there is
some diversity of approach among the Board of Governors of the Federal
Reserve System, the Office of the Comptroller of the Currency, and the
National Credit Union Administration, all of these agencies utilize
full-time internal staff or Board members to carry out their appeals
processes. The Office of the Comptroller of the Currency allows
supervisory appeals to be decided by its Ombudsman, the National Credit
Union Administration allows appeals to a committee of senior staff or
directly to its Board of Directors, and the Board of Governors of the
Federal Reserve System utilizes panels of staff from the Federal
Reserve Banks and the Board of Governors.
Review of material supervisory determinations by the SARC also
promotes independence from the usual supervisory or examination
channels in a manner consistent with the Riegle Act. As provided by the
statute, independent review means review ``by an agency official who
does not directly or indirectly report to the agency official who made
the material supervisory determination under review.'' \8\ Members of
the FDIC's Board of Directors (and their special assistants or
deputies) are agency officials independent from the staff that carry
out day-to-day supervisory responsibilities. They also bring important
knowledge

[[Page 64037]]

and experience with current applicable laws, regulations, and policies
when they consider appeals.
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\8\ 12 U.S.C. 4806(f)(2).
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In terms of timing, comment was not solicited prior to restoring
the SARC structure because, at that time, there were no pending
appeals, and the new Office had not yet been utilized in any cases. The
FDIC sought to avoid a situation in which an appeal might be filed
while these Guidelines and the appropriate appeals structure were under
review. As indicated in the May 2022 notice, taking action quickly
minimized the potential for confusion among IDIs with respect to the
process they must follow in the event they wish to appeal a material
supervisory determination. While the FDIC's primary reason for
restoring the SARC structure was promoting independence and
accountability in the process, it noted that staffing considerations
also favored a return to the SARC structure. Commenters sought
additional detail on these considerations. The FDIC had engaged in
extensive efforts to recruit reviewing officials to staff the Office of
Supervisory Appeals, extending the application postings for these
positions in an attempt to develop a broad pool of applicants. Three
reviewing officials were hired, but this would have been insufficient
to provide for the minimum three-member panel if an individual were
unable to participate in the review of an appeal due to a conflict of
interest or illness, leaving the Office unable to function.
The FDIC is mindful, however, of the commenters' concerns regarding
the need for a balance of perspectives to be reflected in the appellate
process, and agrees that more should be done to achieve that balance.
Adding the Ombudsman to the SARC may help to address this balance
because the Ombudsman has a longstanding role as a neutral advocate for
a fair and impartial process, as recognized by the commenters. The
Ombudsman does not have any ongoing relationship with, or oversight
responsibility for, the agency's supervision function, and including
the Ombudsman's perspective may enhance independence and address
perceptions of fairness.
The FDIC is proposing to add the Ombudsman to the SARC as a non-
voting member in order to minimize any potential for conflict with the
Ombudsman's statutory role. Under the Riegle Act, the Ombudsman acts as
liaison between the agency and any affected person, and assures that
safeguards exist to encourage complainants to come forward and preserve
confidentiality.\9\ The FDIC's Ombudsman has a longstanding commitment
to neutrality that could be compromised if the Ombudsman were to serve
as a voting member of the SARC. If the Ombudsman were a voting member,
he or she might decide a matter against the institution, and this
possibility could affect IDIs' willingness to utilize the Ombudsman's
services.\10\ Serving as a non-voting member of the SARC would allow
the Ombudsman to remain independent of the supervision function. As a
non-voting member, the Ombudsman would be expected to attend SARC
meetings, participate in discussions, and offer views, opinions, and
advice to the SARC during its deliberations based on the Ombudsman's
perspective as a neutral advocate for a fair process, and as a party
independent of the supervisory process. The FDIC believes the
Ombudsman's participation in the SARC as a non-voting member would
balance the views reflected in the committee's membership and give
appealing IDIs greater confidence in the fairness and integrity of the
process. The Ombudsman would also have access to all materials reviewed
by the SARC, as explained below.
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\9\ 12 U.S.C. 4806(d). The FDIC notes that the OCC Ombudsman's
role in deciding supervisory appeals predates the enactment of the
Riegle Act (which also required the appointment of an Ombudsman).
The House Conference Report accompanying the legislation stated:
Some of the Federal banking agencies have in place procedures to
settle disputes between the agency and a financial institution that
may satisfy the requirements of this provision. In addition, some
agencies, for example, the Comptroller of the Currency, may already
have appointed an ombudsman to hear appeals. Nothing in this section
is intended to interfere with such existing programs.
H.R. Conf. Rep. 103-652 at 171. The FDIC also notes that the
Ombudsmen at the Board of Governors of the Federal Reserve System
and the National Credit Union Administration are not involved in
decision making for appeals.
\10\ The FDIC has previously recognized that making decisions
with respect to supervisory appeals would result in some tension
with the Ombudsman's statutory role as a liaison between supervised
institutions and the agency. See 69 FR 41479, 41481 (July 9, 2004).
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The FDIC recognizes that adding the Ombudsman to the SARC could
cause IDIs to reconsider whether they should share confidential
information with the Ombudsman, given that the Ombudsman could be
involved in deciding a potentially related supervisory appeal. The
Guidelines provide a mechanism to address this by allowing a SARC
member to designate a member of his staff to serve on the SARC on his
or her behalf. However, the authority to designate a staff member,
found in section B of the current Guidelines, limits designation to
``the most senior member'' of the SARC member's staff. This may not be
appropriate if, for example, the Ombudsman's senior staff has also been
involved in dispute resolution efforts. The FDIC proposes to broaden
this authority to allow a SARC member to designate any member of his or
her staff within the member's area of responsibility. For example, if
the Ombudsman were unable to serve as a SARC member with respect to a
particular appeal because of information learned from meeting with the
institution, he or she might designate a Regional Ombudsman who has not
been involved in the matter to serve on the SARC instead.
Consistent with the proposed addition of the Ombudsman to the SARC
as a non-voting member, the FDIC also proposes to make certain
conforming changes to other provisions of the Guidelines. Specifically,
section G.4 of the Guidelines currently permits both the Division
Director and the Ombudsman to submit views regarding the appeal to the
SARC. The FDIC proposes to eliminate the reference to the Ombudsman in
this provision in the event the Ombudsman becomes a member of the SARC,
as it would no longer be necessary to provide a separate mechanism for
including the Ombudsman's perspective in the process. For the same
reason, the FDIC proposes to eliminate current section J of the
Guidelines, which states that the subject matter of a material
supervisory determination is not eligible for consideration by the
Ombudsman.
The FDIC also is proposing to amend section G.1 of the Guidelines
to require copies of all relevant materials related to an appeal to be
provided to the Office of the Ombudsman. This change would ensure that
the Ombudsman is aware of all pertinent information and can provide
neutral oversight of the process.
Commenters also expressed concern about possible retaliatory
actions if an IDI submits a supervisory appeal. Due to these concerns,
the FDIC is proposing to amend the Guidelines to require the Ombudsman
to monitor the supervisory process following an IDI's submission of an
appeal. The Ombudsman will be expected to report to the Board on these
matters periodically. The FDIC believes these enhancements to the
process may alleviate some IDIs' concerns regarding potential
retaliation.

[[Page 64038]]

Communications

The FDIC understands the commenters' concerns regarding the
elimination of the provision of the Guidelines that generally required
communications between the Office of Supervisory Appeals and
supervisory staff to be shared with the appealing institution. While
the FDIC believes that the existing provision was too broad for use in
the SARC structure,\11\ it agrees that basic notions of fairness
support a requirement that both parties to the appeal are aware of the
information considered by the decision-maker. The FDIC therefore
proposes to add a provision to the Guidelines, section G.8, requiring
that all materials considered by the SARC are shared with both parties
to the appeal, subject to applicable legal limitations on
disclosure.\12\ The Ombudsman would verify that both parties have
received all materials considered by the SARC.
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\11\ The provision could have been read broadly, for example, to
require the sharing of all communications about pending or ongoing
enforcement actions in the event a bank were to file a supervisory
appeal.
\12\ For example, the disclosure of confidential supervisory
information and certain other types of information is restricted
under 12 CFR part 309. Thus, to the extent that materials shared
with the SARC include such confidential supervisory information
relating to another IDI, for example, that material could be
redacted.
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Standard of Review

As noted above, a commenter recommended that the FDIC adopt a de
novo standard of review, asserting that this would be consistent with
the standard adopted by the Board of Governors of the Federal Reserve
System in its supervisory appeals process. In 2021, the FDIC amended
the Guidelines to provide that the Division Director's standard of
review would be substantially similar to the standard of review
employed by the Federal Reserve's initial review panels.\13\ The FDIC
explained that under this standard, the Division Director would have
discretion to consider examination workpapers and other materials
developed by staff during an examination, but would make an independent
supervisory determination, without deferring to the judgments of either
party.\14\ This standard of review remains unchanged in the current
Guidelines.
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\13\ 86 FR 6880, 6883 (Jan. 25, 2021).
\14\ Id.
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The FDIC believes that the standards of review set forth in its
process are consistent with those used by the Federal Reserve, in that
neither standard provides that the decision maker will defer to the
judgment of agency staff that made the material supervisory
determination under review. The Federal Reserve's initial review panels
review determinations for consistency ``with applicable laws,
regulations, and policy, and supported by a preponderance of the
evidence in the record . . . the panel shall make its own supervisory
determination and shall not defer to the judgment of the Reserve Bank
staff that made the material supervisory determination.'' \15\ This is
similar to the FDIC's review by a Division Director, in which the
Director considers ``whether the material supervisory determination is
consistent with applicable laws, regulations, and policy, [and] make[s]
his or her own supervisory determination without deferring to the
judgments of either party.'' This approach may be considered a de novo
standard of review but lays out with more specificity the actual
considerations to be applied.
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\15\ See Board of Governors of the Federal Reserve System
Supervision Letter 20-28, section B.7. The Board noted that this
approach may be considered a de novo standard of review. See 85 FR
15175, 15177 (Mar. 17, 2020).
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Neither agency's process provides for a de novo standard at the
final level of review. Rather, the Federal Reserve's final review
panels ``determine whether the decision of the initial review panel is
reasonable . . . and whether there has been a clear error of
judgment.'' \16\ Similarly, the SARC reviews an appeal ``for
consistency with the policies, practices, and mission of the FDIC and
the overall reasonableness of, and the support offered for, the
positions advanced.''
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\16\ See Board of Governors of the Federal Reserve System
Supervision Letter 20-28, section B.16.
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Stay of Material Supervisory Determinations

As noted above, a financial holding company recommended that the
FDIC stay supervisory actions during an appeal because supervisory
determinations can have consequences for an institution, such as
removing an institution from expedited processing of applications. The
commenter stated that the FDIC should at least implement a mechanism
whereby a bank could be relieved of such burdens while an appeal is
pending. The commenter noted that the OCC's process allows the
Ombudsman or the appropriate OCC official, upon written request of the
bank, to relieve the bank of an obligation to comply with a supervisory
decision or action while an appeal is pending.\17\
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\17\ See OCC Bulletin 2013-15.
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The FDIC has previously stated that IDIs may request a stay of
supervisory actions from the appropriate Division Director during the
pendency of an appeal,\18\ but agrees that it would be useful to
address this aspect of the process expressly in the Guidelines. There
may be situations where a stay is appropriate to mitigate consequences
of a determination during appellate review. Amending the Guidelines to
expressly permit IDIs to request a stay of an action or determination
would better ensure that IDIs are aware of the ability to request a
stay. The FDIC therefore proposes to amend the Guidelines to allow an
IDI to request a stay of a supervisory action or determination from the
appropriate Division Director while its appeal is pending. The request
must be in writing and include the reasons for the stay. The Division
Director would have discretion to grant a stay, and would generally
decide whether a stay is granted within 21 days of receiving the IDI's
request. The Division Director could grant a stay subject to certain
conditions where appropriate; for example, a stay could be time-
limited.
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\18\ See 82 FR 34522, 34526 (July 25, 2017).
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Request for Comment

The FDIC invites comment on this proposal, particularly the role of
the Ombudsman, sharing of appeal materials, and the ability of an IDI
to request a stay of a supervisory action.
For the reasons set out in the preamble, the Federal Deposit
Insurance Corporation proposes to adopt Guidelines for Appeals 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) (Riegle Act)
required 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 Guidelines for Appeals of Material Supervisory
Determinations (Guidelines) describe the types of determinations that
are eligible for review and the process by which appeals will be
considered and decided. The procedures set forth in these Guidelines
establish an appeals process for the review of material supervisory
determinations by the Supervision Appeals Review Committee (SARC).

[[Page 64039]]

B. SARC Membership

The following individuals comprise the three (3) voting members of
the SARC: (1) One inside FDIC Board member, either the Chairperson, the
Vice Chairperson, or the FDIC Director (Appointive), as designated by
the FDIC Chairperson (this person would serve as the Chairperson of the
SARC); and (2) one deputy or special assistant to each of the inside
FDIC Board members who are not designated as the SARC Chairperson. The
General Counsel and the Ombudsman are non-voting members of the SARC.
The FDIC Chairperson may designate alternate member(s) to the SARC if
there are vacancies so long as the alternate member was not involved in
making or affirming the material supervisory determination under
review. A member of the SARC may designate and authorize a member of
his or her staff within the member's area of responsibility related to
cases before the SARC to act on his or her behalf.

C. Institutions Eligible To Appeal

The Guidelines apply to the insured depository institutions that
the FDIC supervises (i.e., insured State nonmember banks, insured
branches of foreign banks, and state savings associations), and to
other insured depository institutions for which the FDIC makes material
supervisory determinations.

D. Determinations Subject To Appeal

An institution may appeal any material supervisory determination
pursuant to the procedures set forth in these Guidelines.
(1) Material supervisory determinations include:
(a) CAMELS ratings under the Uniform Financial Institutions Rating
System;
(b) IT ratings under the Uniform Rating System for Information
Technology;
(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 appropriateness of loan loss
reserve provisions;
(j) Classifications of loans and other assets in dispute the amount
of which, individually or in the aggregate, exceeds 10 percent of an
institution's total capital;
(k) Determinations relating to violations of a statute or
regulation that may affect the capital, earnings, or operating
flexibility of an institution, or otherwise affect the nature and level
of supervisory oversight accorded an institution;
(l) Truth in Lending Act (Regulation Z) restitution;
(m) Filings made pursuant to 12 CFR 303.11(f), for which a request
for reconsideration has been granted, other than denials of a change in
bank control, change in senior executive officer or board of directors,
or denial of an application pursuant to section 19 of the Federal
Deposit Insurance Act (FDI Act), 12 U.S.C. 1829 (which are contained in
12 CFR 308, subparts D, L, and M, respectively), if the filing was
originally denied by the Director, Deputy Director, or Associate
Director of the Division of Depositor and Consumer Protection (DCP) or
the Division of Risk Management Supervision (RMS);
(n) Decisions to initiate informal enforcement actions (such as
memoranda of understanding);
(o) Determinations regarding the institution's level of compliance
with a formal enforcement action; however, if the FDIC determines that
the lack of compliance with an existing formal enforcement action
requires an additional formal enforcement action, the proposed new
enforcement action is not appealable;
(p) Matters requiring board attention; and
(q) Any other supervisory determination (unless otherwise not
eligible for appeal) that may affect the capital, earnings, operating
flexibility, or capital category for prompt corrective action purposes
of an institution, or that otherwise affects the nature and level of
supervisory oversight accorded an institution.
(2) Material supervisory determinations do not include:
(a) Decisions to appoint a conservator or receiver for an insured
depository institution, and other decisions made in furtherance of the
resolution or receivership process, including but not limited to
determinations pursuant to parts 370, 371, and 381, and Sec. 360.10 of
the FDIC's rules and regulations;
(b) Decisions to take prompt corrective action pursuant to section
38 of the FDI Act, 12 U.S.C. 1831o;
(c) Determinations for which other appeals procedures exist (such
as determinations of deposit insurance assessment risk classifications
and payment calculations); and
(d) Formal enforcement-related actions and decisions, including
determinations and the underlying facts and circumstances that form the
basis of a recommended or pending formal enforcement action.
(3) A formal enforcement-related action or decision commences, and
becomes unappealable, when the FDIC initiates a formal investigation
under 12 U.S.C. 1820(c) (Order of Investigation), issues a notice of
charges or a notice of assessment under 12 U.S.C. 1818 or other
applicable laws (Notice of Charges), provides the institution with a
draft consent order, or otherwise provides written notice to the
institution that the FDIC is reviewing the facts and circumstances
presented to determine if a formal enforcement action is merited under
applicable statutes or published enforcement-related policies of the
FDIC, including written notice of a referral to the Attorney General
pursuant to the Equal Credit Opportunity Act (ECOA) or a notice to the
Secretary of Housing and Urban Development (HUD) for violations of ECOA
or the Fair Housing Act (FHA). Such notice may be provided in the
transmittal letter accompanying a Report of Examination. For the
purposes of these Guidelines, remarks in a Report of Examination do not
constitute written notice that the FDIC is reviewing the facts and
circumstances presented to determine if a proposed enforcement action
is merited. Commencement of a formal enforcement-related action or
decision will not suspend or otherwise affect a pending request for
review or appeal that was submitted before the commencement of the
formal enforcement-related action or decision.
(4) Additional Appeal Rights:
(a) In the case of any written notice from the FDIC to the
institution that the FDIC is determining whether a formal enforcement
action is merited, the FDIC must issue an Order of Investigation, issue
a Notice of Charges, or provide the institution with a draft consent
order within 120 days of such a notice, or the most recent submission
of information from the institution, whichever is later, or appeal
rights will be made available pursuant to these Guidelines. If the FDIC
timely provides the institution with a draft consent order and the
institution rejects the draft consent order in writing, the FDIC must
issue an Order of Investigation or a Notice of Charges within 90 days
from the date on which the institution rejects the draft consent order
in writing or appeal rights will be made available pursuant to these

[[Page 64040]]

Guidelines. The FDIC may extend these periods, with the approval of the
SARC Chairperson, after the FDIC notifies the institution that the
relevant Division Director is seeking formal authority to take an
enforcement action.
(b) In the case of a referral to the Attorney General for
violations of the ECOA, beginning on the date the referral is returned
to the FDIC, the FDIC must proceed in accordance within paragraph (a),
including within the specified timeframes, or appeal rights will be
made available pursuant to these Guidelines.
(c) In the case of providing notice to HUD for violations of the
ECOA or the FHA, beginning on the date the notice is provided, the FDIC
must proceed in accordance within paragraph (a), including within the
specified timeframes, or appeal rights will be made available pursuant
to these Guidelines.
(d) Written notification will be provided to the institution within
10 days of a determination that appeal rights have been made available
under this section.
(e) The relevant FDIC Division and the institution may mutually
agree to extend the timeframes in paragraphs (a), (b), and (c) if the
parties deem it appropriate.

E. Good-Faith Resolution

An institution should make a good-faith effort to resolve any
dispute concerning a material supervisory determination with the on-
site examiner and/or the appropriate Regional Office. The on-site
examiner and the Regional Office will promptly respond to any concerns
raised by an institution regarding a material supervisory
determination. Informal resolution of disputes with the on-site
examiner and the appropriate Regional Office is encouraged, but seeking
such a resolution is not a condition to filing a request for review
with the appropriate Division, either DCP, RMS, or the Division of
Complex Institution Supervision and Resolution (CISR), or to filing a
subsequent appeal with the SARC under these Guidelines.

F. Filing a Request for Review With the Appropriate Division

(1) An institution may file a request for review of a material
supervisory determination with the Division that made the
determination, either the Director, DCP, the Director, RMS, or the
Director, CISR (Director or Division Director), 550 17th Street NW,
Room F-4076, Washington, DC 20429, within 60 calendar 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. Requests for review also may be
submitted electronically. To ensure confidentiality, requests should be
submitted through <a href="http://securemail.fdic.gov">securemail.fdic.gov</a>, directing the message to
<a href="/cdn-cgi/l/email-protection#22664b504741564d507047544b4755704753574751566244464b410c454d54">[email&#160;protected]</a>. A request for review must be in writing
and must 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 materially affect the
institution, and whether a good-faith effort was made to resolve the
dispute with the on-site examiner and the Regional Office; and
(b) A statement that the institution's board of directors or senior
management has considered the merits of the request and has authorized
that it be filed. Senior management is defined as the core group of
individuals directly accountable to the board of directors for the
sound and prudent day-to-day management of the institution. If an
institution's senior management files an appeal, it must inform the
board of directors of the substance of the appeal before filing and
keep the board of directors informed of the appeal's status.
(2) Within 45 calendar days after receiving a request for review
described in paragraph (1), the Division Director will:
(a) review the appeal, considering whether the material supervisory
determination is consistent with applicable laws, regulations, and
policy, make his or her own supervisory determination without deferring
to the judgments of either party, and issue a written determination on
the request for review, setting forth the grounds for that
determination; or
(b) refer the request for review to the SARC for consideration as
an appeal under section G and provide written notice to the institution
that the request for review has been referred to the SARC.
(3) No appeal to the SARC will be allowed unless an institution has
first filed a timely request for review with the appropriate Division
Director.
(4) In any decision issued pursuant to paragraph (2)(a) of this
section, the Director will inform the institution of the 30-day time
period for filing with the SARC and will provide the mailing address
for any appeal the institution may wish to file.
(5) The Division Director may request guidance from the SARC
Chairperson or the Legal Division as to procedural or other questions
relating to any request for review.

G. Appeal to the SARC

An institution that does not agree with the written determination
rendered by the Division Director may appeal that determination to the
SARC within 30 calendar days after the date of receipt of that
determination. Failure to file within the 30-day time limit may result
in denial of the appeal by the SARC.
1. Filing With the SARC
An appeal to the SARC will be considered filed if the written
appeal is received by the FDIC within 30 calendar days after the date
of receipt of the Division Director's written determination or if the
written appeal is placed in the U.S. mail within that 30-day period.
The appeal should be sent to the address indicated on the Division
Director's determination being appealed, or sent via email to
<a href="/cdn-cgi/l/email-protection#95d0c6c6cad4e5e5f0f4f9e6d5f3f1fcf6bbf2fae3">[email&#160;protected]</a>. An acknowledgment of the appeal will be provided
to the institution, and copies of the institution's appeal will be
provided to the Office of the Ombudsman and the appropriate Division
Director. Copies of all relevant materials related to an appeal will be
provided to the Office of the Ombudsman.
2. Contents of Appeal
The appeal should be labeled to indicate that it is an appeal to
the SARC and should contain the name, address, and telephone number of
the institution and any representative, as well as a copy of the
Division Director's determination being appealed. If oral presentation
is sought, that request should be included in the appeal. If expedited
review is requested, the appeal should state the reason for the
request. Only matters submitted to the appropriate Division Director in
a request for review may be appealed to the SARC. Evidence not
presented for review to the Division Director is generally not
permitted; such evidence may be submitted to the SARC only if approved
by the SARC Chairperson and with a reasonable time for the Division
Director to review and respond. The institution should set forth all of
the reasons, legal and factual, why it disagrees with the Division
Director's determination. Nothing in the SARC administrative process
shall create any discovery or other such rights.

[[Page 64041]]

3. Burden of Proof
The burden of proof as to all matters at issue in the appeal,
including timeliness of the appeal if timeliness is at issue, rests
with the institution.
4. Submission From the Division Director
The Division Director may submit views regarding the appeal to the
SARC within 30 calendar days of the date on which the appeal is
received by the SARC.
5. Oral Presentation
The SARC will, if a request is made by the institution or by FDIC
staff, allow an oral presentation. The SARC may hear oral presentations
in person, telephonically, electronically, or through other means
agreed upon by the parties. If an oral presentation is held, the
institution and FDIC staff will be allowed to present their positions
on the issues raised in the appeal and to respond to any questions from
the SARC.
6. Consolidation, Dismissal, and Rejection
Appeals based upon similar facts and circumstances may be
consolidated for expediency. An appeal may be dismissed by the SARC if
it is not timely filed, if the basis for the appeal is not discernable
from the appeal, or if the institution moves to withdraw the appeal.
The SARC will decline to consider an appeal if the institution's right
to appeal is not yet available under section D(4), above.
7. Scope of Review and Decision
The SARC will be an appellate body and will make independent
supervisory determinations. The SARC will review the appeal for
consistency with the policies, practices, and mission of the FDIC and
the overall reasonableness of, and the support offered for, the
positions advanced. The SARC's review will be limited to the facts and
circumstances as they existed prior to, or at the time the material
supervisory determination was made, even if later discovered, and no
consideration will be given to any facts or circumstances that occur or
corrective action taken after the determination was made. The SARC will
not consider any aspect of an appeal that seeks to change or modify
existing FDIC rules or policy. The SARC, after consultation with the
Legal Division, will refer any appeals that raise policy matters of
first impression to the Chairperson's Office for its consideration. The
SARC will notify the institution, in writing, of its decision
concerning the disputed material supervisory determination(s) within 45
days after the date the SARC meets to consider the appeal, which
meeting will be held within 90 days after either the date of the filing
of the appeal or the date that the Division Director refers the appeal
to the SARC.
8. Other Communications
Materials considered by the SARC will be shared with both parties
to the appeal, subject to applicable legal limitations on disclosure.
The Ombudsman will verify that both parties have received all materials
considered by the SARC.

H. Publication of Decisions

Decisions of the SARC will be published as soon as practicable, and
the published decisions will be redacted to avoid disclosure of the
name of the appealing institution and any information exempt from
disclosure under the Freedom of Information Act and the FDIC's document
disclosure regulations found in 12 CFR part 309. In cases in which
redaction is deemed insufficient to prevent improper disclosure,
published decisions may be presented in summary form. Published SARC
decisions may be cited as precedent in appeals to the SARC. Annual
reports on the SARC's decisions and Division Directors' decisions with
respect to institutions' requests for review of material supervisory
determinations also will be published.

I. Appeal Guidelines Generally

Appeals to the SARC will be governed by these Guidelines. The SARC,
with the concurrence of the Legal Division, will retain discretion to
waive any provision of the Guidelines for good cause. Supplemental
rules governing the SARC's operations may be adopted.
Institutions may request extensions of the time period for
submitting appeals under these Guidelines from either the appropriate
Division Director or the SARC Chairperson, as appropriate. If a filing
under these Guidelines is due on a Saturday, Sunday, or a Federal
holiday, the filing may be made on the next business day.
Institutions may request from the appropriate Division Director a
stay of a supervisory action or determination while an appeal of that
determination is pending. The request must be in writing and include
the reason(s) for the stay. The Division Director has discretion to
grant a stay and will generally decide whether to grant a stay within
21 days of receiving the institution's request. The Division Director
may grant a stay subject to conditions, including time limitations,
where appropriate.

J. Coordination With State Regulatory Authorities

In the event that a material supervisory determination subject to a
request for review is the joint product of the FDIC and a State
regulatory authority, the Director, DCP, the Director, RMS, or the
Director, CISR, as appropriate, will promptly notify the appropriate
State regulatory authority of the request, 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 request before making a determination. In
the event that an appeal is subsequently filed with the SARC, the SARC
will notify the institution and the State regulatory authority of its
decision. Once the SARC has issued its determination, any other issues
that may remain between the institution and the State regulatory
authority will be left to those parties to resolve.

K. 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 during the appeal or
affect the FDIC's authority to take any supervisory or enforcement
action against that institution.

L. 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 that
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.

M. Prohibition on Examiner Retaliation

The FDIC has an experienced examination workforce and is proud of
its professionalism and dedication. FDIC policy prohibits any
retaliation, abuse, or retribution by an agency examiner or any FDIC
personnel against an institution. Such behavior 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. In light of this
important principle, the Ombudsman will monitor the supervision process
following an institution's submission of an appeal under these
Guidelines. The

[[Page 64042]]

Ombudsman will report to the Board on these matters periodically.
Institutions that believe they have been retaliated against are
encouraged to contact the Regional Director for the appropriate FDIC
region. Any institution that believes or has any evidence that it has
been subject to retaliation may file a complaint with the Director,
Office of the Ombudsman, Federal Deposit Insurance Corporation, 3501
Fairfax Drive, Suite E-2022, Arlington, VA 22226, 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. The Office of the Ombudsman will work with the
appropriate Division Director to resolve the allegation of retaliation.

Federal Deposit Insurance Corporation.

By order of the Board of Directors.

Dated at Washington, DC, on October 18, 2022.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2022-22946 Filed 10-20-22; 8:45 am]
BILLING CODE 6714-01-P

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