Guidelines for Appeals of Material Supervisory Determinations, 34522-34529 [2017-15466]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 82, Number 141 (Tuesday, July 25, 2017)]
[Notices]
[Pages 34522-34529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15466]


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FEDERAL DEPOSIT INSURANCE CORPORATION


Guidelines for Appeals of Material Supervisory Determinations

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of Guidelines.

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SUMMARY: On July 18, 2017, the Federal Deposit Insurance Corporation 
(FDIC) Board of Directors (Board) adopted revised Guidelines for 
Appeals of Material Supervisory Determinations (Guidelines) to provide 
institutions with broader avenues of redress with respect to material 
supervisory determinations and enhance consistency with the appeals 
process of the other Federal banking agencies. The revisions to the 
Guidelines permit the appeal of the level of compliance with an 
existing formal enforcement action, the decision to initiate an 
informal enforcement action, and matters requiring board attention; 
provide that a formal enforcement-related action or decision does not 
affect an appeal that is pending under the Guidelines; make additional 
opportunities for appeal available under the Guidelines in certain 
circumstances; provide for the publication of annual reports on 
Division Directors' decisions with respect to material supervisory 
determinations; and make other limited technical and conforming 
amendments.

DATES: The revised Guidelines become effective on July 18, 2017.

FOR FURTHER INFORMATION CONTACT: Patricia Colohan, Associate Director, 
Division of Risk Management Supervision, (202) 898-7283; Sylvia 
Plunkett, Senior Deputy Director, Division of Depositor and Consumer 
Protection, (202) 898-6929; and James Watts, Senior Attorney, Legal 
Division, (202) 898-6678.

SUPPLEMENTARY INFORMATION: On August 4, 2016, the FDIC published in the 
Federal Register for notice and comment proposed amendments to the 
Guidelines for Appeals of Material Supervisory Determinations that 
would provide institutions with broader avenues of redress with respect 
to material supervisory determinations.\1\ The 60-day comment period 
ended October 3, 2016. The FDIC received two comment letters, one from 
a trade association and another from a financial holding company. These 
comments and the FDIC's responses are summarized below.
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    \1\ 81 FR 51441 (Aug. 4, 2016).
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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 Board) to establish an independent intra-agency 
appellate process to review material supervisory determinations.\2\ The 
Riegle 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.'' \3\ In the appeals process, the FDIC is 
required to ensure that: (1) An appeal of a material supervisory 
determination by an insured depository institution is heard and decided 
expeditiously; and (2) appropriate safeguards exist for protecting 
appellants from retaliation by agency examiners.\4\
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    \2\ 12 U.S.C. 4806(a).
    \3\ 12 U.S.C. 4806(f)(2).
    \4\ 12 U.S.C. 4806(b).
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    The term ``material supervisory determinations'' is defined to 
include determinations relating to: (1) Examination ratings; (2) the 
adequacy of loan loss reserve provisions; and (3) classifications on 
loans that are significant to an institution.\5\ The Riegle 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 (FDI Act), 
12 U.S.C. 1831o.\6\ Finally, section 309(g) of the Riegle Act expressly 
provides that the requirement to establish an appeals process shall not 
affect the authority of the Federal banking agencies to take 
enforcement or supervisory actions against an institution.\7\
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    \5\ 12 U.S.C. 4806(f)(1)(A).
    \6\ 12 U.S.C. 4806(f)(1)(B).
    \7\ 12 U.S.C. 4806(g).
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    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 
proposed Guidelines for Appeals of Material Supervisory 
Determinations.\8\ In the proposed Guidelines, the FDIC proposed that 
the term ``material supervisory determinations,'' in addition to the 
statutory exclusions noted above, also should exclude: (1) 
Determinations for which other appeals procedures exist (such as 
determinations relating to deposit

[[Page 34523]]

insurance assessment risk classifications); (2) decisions to initiate 
formal enforcement actions under section 8 of the FDI Act; (3) 
decisions to initiate informal enforcement actions (such as memoranda 
of understanding); (4) determinations relating to a violation of a 
statute or regulation; and (5) any other determinations not specified 
in the Riegle Act as being eligible for appeal.
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    \8\ 59 FR 66965 (Dec. 28, 1994).
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    Commenters to those proposed Guidelines had suggested that the 
proposed limitations on determinations eligible for appeal were too 
restrictive. In response to comments received, the FDIC modified the 
proposed Guidelines on March 21, 1995. The FDIC added a final 
clarifying sentence to the listing of ``Determinations Not Eligible for 
Appeal'' in the Guidelines as follows: ``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.'' \9\
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    \9\ 60 FR 15929 (Mar. 28, 1995).
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    On March 18, 2004, the FDIC published in the Federal Register, for 
a 30-day comment period, a notice and request for comments regarding 
proposed revisions to the Guidelines, which would have changed the 
composition and procedures of the SARC.\10\ On July 9, 2004, the FDIC 
published in the Federal Register a notice of guidelines which, 
effective June 28, 2004, adopted the revised Guidelines, largely as 
proposed.\11\
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    \10\ 69 FR 12855 (Mar. 18, 2004).
    \11\ 69 FR 41479 (July 9, 2004).
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    On May 27, 2008, the FDIC published in the Federal Register, for a 
60-day comment period, a notice and request for comments regarding 
proposed revisions to the Guidelines.\12\ On September 23, 2008, the 
FDIC published in the Federal Register final revisions to the 
Guidelines \13\ modifying the supervisory determinations eligible for 
appeal to eliminate the ability of an FDIC-supervised institution to 
file an appeal with the SARC for 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-related action or decision, and the initiation of an 
investigation under section 10(c) of the FDI Act.\14\ The FDIC noted at 
that time that these amendments better aligned the SARC appellate 
process with the material supervisory determinations appeals procedures 
at the other Federal banking agencies.
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    \12\ 73 FR 30393 (May 27, 2008).
    \13\ 73 FR 54822 (Sept. 23, 2008).
    \14\ 12 U.S.C. 1820(c).
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    On April 19, 2010, the FDIC published in the Federal Register 
revised Guidelines, effective April 13, 2010, extending the decision 
deadline for requests for review and clarifying the decisional deadline 
for written decisions by the SARC.\15\
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    \15\ 75 FR 20358 (Apr. 19, 2010).
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    On March 23, 2012, the FDIC published in the Federal Register 
revised Guidelines, effective March 20, 2012 that included technical 
and ministerial revisions to reflect changes in the organization of the 
FDIC's Board, of its offices and divisions, and in the categories of 
institutions that it supervises.\16\
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    \16\ 77 FR 17055 (Mar. 23, 2012).
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Amendments to the Guidelines

    As explained above, the FDIC adopted amendments to the Guidelines 
in 2008 modifying the supervisory determinations eligible for appeal to 
eliminate the ability of an FDIC-supervised institution to file an 
appeal with the SARC for 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-related action or decision, and the initiation of an 
investigation. Since that time, the FDIC's experience in administering 
the current SARC appeals process suggests that it would be beneficial 
for institutions to have broader avenues of redress with respect to 
material supervisory determinations. Accordingly, the FDIC is amending 
the Guidelines to expand institutions' opportunities for appeal under 
certain circumstances and enhance consistency with the appeals process 
of the other Federal banking agencies. The FDIC is also making certain 
technical and non-substantive changes to the Guidelines to make them 
easier to understand.

I. Material Supervisory Determinations Eligible for Review

    The amendments published for comment in the Federal Register on 
August 4, 2016 proposed to broaden the definition of ``material 
supervisory determination'' in two respects. First, the amendments 
proposed to allow determinations regarding an institution's level of 
compliance with a formal enforcement action to be appealed as a 
material supervisory determination; however, if the FDIC determines 
that lack of compliance with an existing enforcement action requires 
additional enforcement action, the proposed new enforcement action 
would not be appealable. Second, the amendments proposed to remove from 
the list of determinations that are not appealable the decision to 
initiate an informal enforcement action, such as a Memorandum of 
Understanding. Commenters supported these changes and the FDIC has 
adopted them as proposed.
    One commenter noted that while the amendments published for comment 
proposed to remove from the list of determinations that are not 
appealable the decision to initiate an informal enforcement action, 
they did not propose to make such decisions expressly appealable. The 
commenter requested that, for clarity, the FDIC add the decision to 
initiate an informal enforcement action to the list of appealable 
determinations. The FDIC agrees that this change clarifies 
institutions' opportunities for appeal. Accordingly, the amended 
Guidelines provide expressly that material supervisory determinations 
include decisions to initiate informal enforcement actions.\17\
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    \17\ As a practical matter, the FDIC believes that appeals of 
decisions to initiate informal enforcement actions are likely to be 
rare due to differences in the processes for initiating formal and 
informal enforcement actions.
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    A commenter recommended that the definition of material supervisory 
determination include matters requiring board attention. This commenter 
noted that matters requiring board attention are arguably subject to 
appeal under the current Guidelines. The FDIC believes that this change 
clarifies institutions' opportunities for appeal and enhances 
consistency with the appellate processes used by other agencies. 
Accordingly, the amended Guidelines provide expressly that matters 
requiring board attention are material supervisory determinations that 
may be appealed under the Guidelines.
    A commenter stated that the FDIC should allow appeals of the 
conclusions in an examination report. As discussed above, the Riegle 
Act provides for the review of ``material supervisory determinations.'' 
\18\ The FDIC anticipates that many conclusions in examination reports 
would be ``material supervisory determinations'' within the meaning of 
the statute and Guidelines and therefore appealable under the 
Guidelines. However, in 2016 the FDIC also put in place an informal 
process through which institutions can obtain review by the relevant 
Division Director of matters that are not covered by the SARC process 
or another existing FDIC

[[Page 34524]]

appeals or administrative process. See FIL-51-2016 (July 29, 2016).
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    \18\ 12 U.S.C. 4806(a).
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    One commenter recommended that the definition of material 
supervisory determination include any supervisory action that would 
adversely impact an institution, including: (1) Formal enforcement 
actions and assessments of civil money penalties; (2) public disclosure 
of a determination that an institution has violated a law or 
regulation, has committed an unsafe or unsound practice, or is in an 
unsafe and unsound condition; (3) restrictions on an institution's 
ability to open or expand branches or to purchase other institutions or 
their assets; (4) decisions to refer a matter to another agency for 
enforcement; and (5) ratings downgrades that would have adverse 
consequences for the institution, regardless of whether the downgrade 
is related to an enforcement action. Each of these supervisory actions 
is addressed below.
    Institutions that wish to appeal a formal enforcement action, 
including the assessment of a civil money penalty, have the ability to 
seek redress through the administrative process established under 
Section 8 of the FDI Act and Part 308 of the FDIC's regulations. 
Recommendations to pursue formal enforcement actions are reviewed by 
high-level FDIC officials prior to their initiation and are monitored 
by such officials subsequently. Contested enforcement actions include 
the right to an administrative hearing held before an impartial 
administrative law judge who makes findings of fact and conclusions of 
law and issues a recommended decision to the FDIC Board of Directors. 
The Board of Directors issues a final decision that is subject to 
review in federal court.
    Accordingly, the FDIC believes that the administrative enforcement 
process provides the appropriate avenue for contesting such 
determinations and notes that addressing formal enforcement-related 
actions through the administrative enforcement process is consistent 
with the other Federal banking agencies' appellate processes.\19\ The 
FDIC also notes that public disclosure of a determination that an 
institution has violated a law or regulation, has committed an unsafe 
or unsound practice, or is in an unsafe and unsound condition would 
typically occur in connection with a formal enforcement action, and is 
required by law to be made public.
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    \19\ The FDIC considered institutions' opportunity to contest 
determinations through the administrative enforcement process when 
it revised the Guidelines in 2008, eliminating the ability to file 
appeals with the SARC with respect to formal enforcement-related 
actions or decisions, including determinations and the underlying 
facts and circumstances forming the basis of a recommended or 
pending formal enforcement action. See 73 FR 54822, 54824 (Sep. 23, 
2008).
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    Institutions currently may appeal restrictions based on examination 
ratings by appealing the relevant rating. Ratings also may affect 
institutions' applications with respect to certain activities. The FDIC 
also applies specific standards to failed bank acquisitions based upon 
the acquiring institution's CAMELS rating.\20\ The Guidelines currently 
permit appeals of final decisions with respect to certain applications. 
See Section D, paragraph (m) of the Guidelines. Institutions file 
requests for reconsideration of such applications pursuant to Part 
303.11(f) of the FDIC's regulations, 12 CFR 303.11(f). If the request 
for reconsideration is granted, and the filing was originally denied by 
a Division Director, the institution may appeal that determination to 
the SARC. In addition, if an institution has concerns with FDIC staff 
processing of applications before a final decision is made, the FDIC 
also provides an informal process to obtain review of the matter by the 
Division Director. See FIL-51-2016 (July 29, 2016).
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    \20\ See FDIC Statement of Policy on Qualifications for Failed 
Bank Acquisitions, 74 FR 45440, 45448 (Sep. 2, 2009).
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    With respect to referrals of matters to another agency, the Equal 
Credit Opportunity Act (ECOA) requires the FDIC to refer matters to the 
Attorney General whenever the agency has reason to believe that one or 
more creditors has engaged in a pattern or practice of discouraging or 
denying applications for credit in violation of the statute.\21\ 
Similarly, where the FDIC has reason to believe that an ECOA violation 
also would violate the Fair Housing Act (FHA) and the matter is not 
required to be referred to the Attorney General, it is required to 
notify the Department of Housing and Urban Development (HUD).\22\
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    \21\ 15 U.S.C. 1691e(g).
    \22\ 15 U.S.C. 1691e(k).
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    The Guidelines currently allow institutions to appeal a variety of 
ratings, including CAMELS ratings, information technology ratings, 
trust ratings, Community Reinvestment Act ratings, and consumer 
compliance ratings, regardless of whether a change in the rating is 
related to an enforcement action. However, the facts and circumstances 
that form the basis of a recommended or pending formal enforcement 
action cannot be challenged through the process set forth in the 
Guidelines and must instead be addressed through the administrative 
enforcement process. In such instances, an appeal of the rating may be 
available through the SARC process based on grounds other than the 
facts and circumstances that form the basis of the recommended or 
pending formal enforcement action.

II. Commencement of Formal Enforcement Action

    Currently, the Guidelines state that a formal enforcement action or 
decision commences, and therefore becomes unappealable, when the FDIC 
initiates a formal investigation under 12 U.S.C. 1820(c) or provides 
written notice to the institution indicating the FDIC's intention to 
pursue available formal enforcement remedies under applicable statutes 
or published enforcement-related policies of the FDIC, including 
written notice of a referral to the Attorney General pursuant to ECOA 
or a notice to HUD for violations of ECOA and the FHA. The proposed 
amendments provided that a formal enforcement-related action or 
decision would commence and become unappealable when the FDIC initiates 
a formal investigation under 12 U.S.C. 1820(c) or provides written 
notice to the institution of a recommended or proposed formal 
enforcement action under applicable statutes or published enforcement-
related policies of the FDIC, including written notice of a referral to 
the Attorney General pursuant to ECOA or a notice to HUD for violations 
of ECOA and the FHA. This amendment, which the FDIC has adopted as 
proposed, is not intended to make a substantive change, but rather, to 
clarify the Guidelines and make them more consistent with the appellate 
processes used by other agencies.
    A commenter requested that the FDIC further clarify when a formal 
enforcement-related action has commenced. Institutions will be notified 
in writing that the FDIC has recommended or proposed a formal 
enforcement action. Other types of correspondence from the FDIC to the 
institution, such as letters requesting additional information or 
referencing a violation of law without an express statement that the 
FDIC has recommended or proposed a formal enforcement action, are not 
considered to constitute notice of a recommended or proposed formal 
enforcement action for purposes of the Guidelines.
    One commenter also expressed the concern that examiners may try to 
shield material supervisory determinations from appellate review by 
labeling them ``enforcement-related'' or initiating a formal 
enforcement action

[[Page 34525]]

on the eve of appeal. Formal enforcement actions are reviewed by high-
level FDIC officials prior to their initiation. Moreover, field 
examiners do not decide whether material supervisory determinations 
form the basis of a formal enforcement action and are therefore 
reviewable only through the administrative enforcement process. 
Institutions submit requests for review to staff at the FDIC's 
Washington office. Division staff who were not substantively involved 
in the decision carefully consider the request for review in 
consultation with Legal Division SARC specialists to ascertain whether 
specific determinations are subject to appeal under the Guidelines, or 
alternatively, through another process. The FDIC believes that these 
processes mitigate the concern that an examiner might characterize a 
finding as related to a formal enforcement action, or initiate such an 
action, for the purpose of precluding an appeal under the Guidelines.
    The proposed amendments also provided that initiation of a formal 
enforcement-related action or decision would not affect the appeal of 
any material supervisory determination that is pending under the 
Guidelines. In other words, this ensures that where an institution has 
filed an appeal of a material supervisory determination through the 
SARC process, the appeal will not be affected if the FDIC subsequently 
initiates a formal enforcement-related action or decision based on the 
same facts and circumstances as the appeal. The FDIC has adopted this 
amendment as proposed.

III. Additional Opportunities for Appeal

    The amendments published for comment proposed to allow institutions 
additional opportunities to appeal material supervisory determinations 
through the SARC process in certain circumstances. In particular, the 
amendments proposed to allow an institution an additional opportunity 
to appeal material supervisory determinations where the FDIC provides 
the institution with written notice of a recommended or proposed formal 
enforcement action but does not pursue an enforcement action within 120 
days of the written notice. The FDIC could extend this 120-day period, 
with the approval of the SARC Chairperson, if the FDIC notifies the 
institution that the relevant Division Director is seeking formal 
authority to take an enforcement action. The FDIC also proposed to 
allow institutions an additional opportunity to appeal material 
supervisory determinations through the SARC process in the case of a 
referral to the Attorney General for certain violations of ECOA if the 
Attorney General returns the matter to the FDIC and the FDIC does not 
initiate an enforcement action within 120 days of the date the referral 
is returned. Similarly, an additional opportunity to appeal through the 
SARC process would be allowed if the FDIC provides notice to HUD for 
violations of ECOA or the FHA, but does not initiate an enforcement 
action within 120 days of the date the notice is provided. The 
amendments published for comment proposed to allow the 120-day 
timeframe to be extended if the FDIC and the institution mutually agree 
and deem it appropriate in order to reach a mutually agreeable 
solution. Institutions would be provided written notice of the 
additional opportunity to submit an appeal through the SARC process 
within 10 days of a determination that an appeal will be made 
available. The FDIC has adopted these amendments as proposed.
    A commenter suggested that the FDIC should reduce the 120-day 
period in these provisions to 60 days because during this period, banks 
are subject to penalties and restrictions that can adversely affect 
operations. The FDIC believes that the 120-day time frame contained in 
these provisions is appropriate. As discussed above, formal enforcement 
actions are reviewed by high-level FDIC officials prior to their 
initiation. The 120-day time period appropriately balances the need for 
adequate review of enforcement actions with institutions' desire to 
promptly appeal material supervisory determinations.

IV. Structure of the Appellate Process

    Commenters also addressed the structure of the appellate process. 
One commenter stated that the FDIC should employ an independent review 
process that is not confined exclusively to agency officials. The FDIC 
is mindful of the commenter's concern but concludes that review by 
high-level officials who were not involved in the determination at 
issue and do not report to the official who made the determination is 
consistent with the Riegle Act, which provides for an intra-agency 
appellate process.\23\ The SARC is comprised of high-level officials, 
including one inside member of the FDIC's Board of Directors, who is 
designated the SARC Chairperson, and one deputy or special assistant to 
each of the inside Board members who are not designated as the SARC 
Chairperson. Furthermore, the amended Guidelines are specifically 
intended to provide institutions with broader avenues of redress with 
respect to material supervisory determinations. The FDIC also provides 
an informal process for review at the Division Director level of any 
matters that are not covered by an existing FDIC appeals or 
administrative process, such as the SARC appeals process or the 
administrative enforcement process. See FIL-51-2016 (July 29, 2016). 
Institutions may use this informal process to address, for example, 
concerns about FDIC staff processing of applications before a final 
decision is made.
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    \23\ 12 U.S.C. 4806(a).
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    A commenter suggested that under the Guidelines, initial appeals 
should be filed with the SARC, which is outside the supervision 
structure, rather than with the Division Director. The commenter noted 
that the OCC allows institutions to file appeals with its Ombudsman. 
The FDIC's experience in administering the appellate process, however, 
suggests that Division-level review resolves issues, narrowing the 
matters in dispute prior to SARC review or eliminating the need for an 
appeal to the SARC. Division-level review also ensures that the 
arguments are more fully developed for SARC review and allows the 
Division Director to correct errors and maintain consistency across the 
organization.
    The same commenter stated that if the FDIC retains Division-level 
reviews, it should increase the transparency of those reviews by 
publishing Division Directors' decisions. Division Directors conduct 
their reviews on an expedited basis, issuing written determinations on 
institutions' requests for review within 45 days of receipt of the 
request. However, the FDIC believes that the transparency of the 
process could be enhanced by providing institutions with additional 
information regarding Division-level reviews. Accordingly, the amended 
Guidelines provide for publication of annual reports on Division 
Directors' decisions with respect to institutions' requests for review 
of material supervisory determinations.
    A commenter stated that the FDIC should clarify that SARC decisions 
may be appealed to the federal courts of appeal. The FDIC notes that 
because supervisory decisions are entrusted to agency discretion, SARC 
decisions are not appealable.

V. Standard of Review

    Commenters also addressed the standard of review that applies to 
appeals filed under the Guidelines. A commenter stated that the 
proposed

[[Page 34526]]

amendments to the Guidelines did not address the high standard of 
review banks must meet when seeking redress. Another commenter stated 
that the FDIC should apply a de novo standard of review to appeals 
rather than the current standard, which the commenter believes is too 
deferential to examiners. Pursuant to Section M of the Guidelines, the 
SARC reviews appeals 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 balanced 
approach includes review of the evidence and arguments presented by 
both Division staff and the appealing institution. In addition to 
submitting written materials, an institution is generally invited to 
make an oral presentation before the SARC and explain its positions on 
the issues raised in the appeal. The FDIC believes that this approach 
is reasonable and enables institutions to obtain a full and fair review 
of material supervisory determinations.
    A commenter suggested that institutions also should be entitled to 
adduce evidence and engage in reasonable discovery during the appeals 
process. However, institutions often present extensive evidence in 
support of their appeals, and it is not apparent that the current 
process has hindered institutions' appeals.
    One commenter requested that the FDIC clarify the standard of 
review for Division-level reviews, noting that the Guidelines are not 
clear in this respect. The FDIC agrees that it would be useful to 
clarify this aspect of the process. Historically, the same standard of 
review has been applied to Division-level reviews and SARC appeals. The 
amended Guidelines apply the current standard of review for SARC 
appeals to Division-level reviews.

VI. Stay of Supervisory Actions

    A commenter requested that the FDIC stay supervisory actions during 
the pendency of an appeal. While the FDIC generally does not stay 
material supervisory determinations while an appeal under the 
Guidelines is pending, the Guidelines do not prohibit an institution 
from making such a request of the Division Director.
    For the reasons set out in the preamble, the Federal Deposit 
Insurance Corporation Board of Directors adopts the 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).

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 is a non-voting member 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 the most senior member of his 
or her staff within the substantive 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 with respect to 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.
    Material supervisory determinations include:
    (a) CAMELS ratings under the Uniform Financial Institutions Rating 
System;
    (b) IT 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, 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 (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 additional enforcement action, the proposed new enforcement 
action is not appealable;
    (p) Matters requiring board attention; and

[[Page 34527]]

    (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 otherwise affect the nature and level of 
supervisory oversight accorded an institution.
    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 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.
    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) or provides written notice to the institution 
of a recommended or proposed formal enforcement action 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). For the purposes of these Guidelines, remarks 
in a Report of Examination do not constitute written notice of a 
recommended or proposed enforcement action. A formal enforcement-
related action or decision does not affect the appeal of any material 
supervisory determination that is pending under these Guidelines.
    Additional SARC Rights:
    (a) In the case of any written notice from the FDIC to the 
institution of a recommended or proposed formal enforcement action, 
including a draft consent order, if an enforcement action, such as the 
issuance of a notice of charges or the signing of a consent order, is 
not pursued within 120 days of the written notice, SARC appeal rights 
will be made available pursuant to these guidelines. The FDIC may 
extend this 120-day period, with the approval of the SARC Chairperson, 
if 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, if the Attorney General returns the matter to 
the FDIC and the FDIC does not initiate an enforcement action within 
120 days of the date the referral is returned, SARC 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, if the FDIC does not initiate an enforcement action 
within 120 days of the date the notice is provided, SARC appeal rights 
will be made available under these guidelines.
    (d) Written notification of SARC rights will be provided to the 
institution within 10 days of a determination that such rights have 
been made available.
    (e) The FDIC and an institution may mutually agree to extend the 
timeframes in paragraphs (a), (b), and (c) if the parties deem it 
appropriate in order to reach a mutually agreeable solution.

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/or 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 or RMS, or to filing 
an appeal with the SARC under these Guidelines.

F. Filing a Request for Review With the Appropriate Division

    An institution may file a request for review of a material 
supervisory determination with the Division that made the 
determination, either the Director, DCP, or the Director, RMS, 
(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. 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 has 
considered the merits of the request and has authorized that it be 
filed.
    The Division Director 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 Division Director will issue a written determination on the request 
for review, setting forth the grounds for that determination, within 45 
days of receipt of the request. No appeal to the SARC will be allowed 
unless an institution has first filed a timely request for review with 
the appropriate Division Director.

G. Appeal to the SARC

    An institution that does not agree with the written determination 
rendered by the Division Director must appeal that determination to the 
SARC within 30 calendar days from the date of that determination. The 
Director's determination 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. Failure to file within 
the 30-day time limit may result in denial of the appeal by the SARC. 
If the Division Director recommends that an institution receive relief 
that the Director lacks delegated authority to grant, the Director may, 
with the approval of the Chairperson of the SARC, transfer the matter 
directly to the SARC without issuing a determination. Notice of such a 
transfer will be provided to the institution. The Division Director may 
also request guidance from the SARC Chairperson as to procedural or 
other questions relating to any request for review.

H. 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 from the date of 
the Division Director's written determination or if the written appeal 
is placed in the U.S. mail within that 30-day period. If the 30th day 
after the date of the Division Director's written determination is a 
Saturday, Sunday, or a Federal holiday, filing may be made on the next 
business day. The appeal should be sent to the

[[Page 34528]]

address indicated on the Division Director's determination being 
appealed.

I. 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. Only matters 
previously reviewed at the division level, resulting in a written 
determination or direct referral to the SARC, may be appealed to the 
SARC. Evidence not presented for review to the Division Director may be 
submitted to the SARC only if authorized by the SARC Chairperson. 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.

J. 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.

K. Oral Presentation

    The SARC may, in its discretion, whether or not a request is made, 
determine to allow an oral presentation. The SARC generally grants a 
request for oral presentation if it determines that oral presentation 
is likely to be helpful or would otherwise be in the public interest. 
Notice of the SARC's determination to grant or deny a request for oral 
presentation will be provided to the institution. If oral presentation 
is held, the institution will be allowed to present its positions on 
the issues raised in the appeal and to respond to any questions from 
the SARC. The SARC may also require that FDIC staff participate as the 
SARC deems appropriate.

L. Dismissal, Withdrawal and Rejection

    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. An appeal may be rejected 
if the right to appeal has been cut off under Section D, above.

M. Scope of Review and Decision

    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 will 
notify the institution, in writing, of its decision concerning the 
disputed material supervisory determination(s) within 45 days from the 
date the SARC meets to consider the appeal, which meeting will be held 
within 90 days from the date of the filing of the appeal. SARC 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 may reconsider its decision only on a 
showing of an intervening change in the controlling law or the 
availability of material evidence not reasonably available when the 
decision was issued.

N. Publication of Decisions

    SARC decisions will be published as soon as practicable, and the 
published decisions will be redacted to avoid disclosure of exempt 
information. 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 Division Directors' decisions 
with respect to institutions' requests for review of material 
supervisory determinations also will be published.

O. SARC Guidelines Generally

    Appeals to the SARC will be governed by these Guidelines. The SARC 
will retain discretion to waive any provision of the Guidelines for 
good cause. The SARC may adopt supplemental rules governing its 
operations; order that material be kept confidential; and consolidate 
similar appeals.

P. Limitation on Agency Ombudsman

    The subject matter of a material supervisory determination for 
which either an appeal to the SARC has been filed, or a final SARC 
decision issued, is not eligible for consideration by the Ombudsman.

Q. 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, or the Director, RMS, 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 authority will be left to those 
parties to resolve.

R. 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.

S. 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.

T. 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. 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, 550 17th Street, Washington, DC 
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. The Office of the 
Ombudsman will work with the appropriate Division Director to resolve 
the allegation of retaliation.


[[Page 34529]]


    By order of the Board of Directors.

    Dated at Washington, DC, the 18th day of July, 2017.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2017-15466 Filed 7-24-17; 8:45 am]
 BILLING CODE 6714-01-P