Guidelines for Appeals of Material Supervisory Determinations, 64034-64042 [2022-22946]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 87, Number 203 (Friday, October 21, 2022)]
[Notices]
[Pages 64034-64042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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:
     Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow the instructions for 
submitting comments.
     Email: [email protected]. Include ``Guidelines for Appeals 
of Material Supervisory Determinations--RIN 3064-ZA20'' in the subject 
line of the message.
     Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Comments--RIN 3064-ZA20, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.
     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).
     Public Inspection: Comments received, including any 
personal information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/. 
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, [email protected]; James Watts, Counsel, Legal 
Division, 202-898-6678, [email protected].

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 securemail.fdic.gov, directing the message to 
[email protected]. 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 
[email protected]. 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