Each depositor insured to at least $250,000 per insured bank



Home > News & Events > Inactive Financial Institution Letters




Inactive Financial Institution Letters


[Federal Register: March 28, 1995 (Volume 60, Number 59)]
[Notices]               
[Page 15923-15931]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]


=======================================================================
-----------------------------------------------------------------------

FEDERAL DEPOSIT INSURANCE CORPORATION

 
Intra-Agency Appellate Process

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of guidelines.

-----------------------------------------------------------------------

SUMMARY: On March 21, 1995, the Board of Directors (Board) of the 
Federal Deposit Insurance Corporation (FDIC) adopted guidelines for the 
establishment of an independent intra-agency appellate process to 
review material supervisory determinations as required by the Riegle 
Community Development and Regulatory Improvement Act of 1994. The 
guidelines were effective upon adoption and supersede the FDIC's 
procedures for requesting review of supervisory determinations set 
forth in FIL-11-92, dated February 7, 1992. The guidelines are intended 
to clarify the types of determinations that are eligible for review and 
establish the process by which appeals will be considered and decided.

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

FOR FURTHER INFORMATION CONTACT: William G. Hrindac, Examination 
Specialist (202/898-6892), Division of Supervision; Ken A. Quincy, 
Section Chief (202/942-3088), Division of Compliance and Consumer 
Affairs; Gwen E. Factor, Counsel (202/898-8522), Legal Division, 
Federal Deposit Insurance Corporation, 550 17th Street, N.W., 
Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION:

Background

    Section 309(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) (Act) 
requires the FDIC (as well as the other Federal banking agencies and 
the National Credit Union Administration Board) to establish an 
independent intra-agency appellate process to review material 
supervisory determinations. The process is to be established within 180 
days after enactment of the Act (i.e., by March 22, 1995). The Act 
defines the term ``independent appellate process'' to mean a review by 
an agency official who does not directly or indirectly report to the 
agency official who made the material supervisory determination under 
review. In establishing the appeals process, the FDIC must ensure that: 
(1) any appeal of a material supervisory determination by an insured 
depository institution is heard and decided expeditiously; and (2) 
appropriate safeguards exist for protecting the appellant from 
retaliation by agency examiners.
    Section 309(c) of the Act requires public notice and opportunity 
for comment on proposed guidelines for the establishment of the 
independent appellate process. On December 28, 1994, the FDIC published 
in the Federal Register, for a 30-day comment period, a notice of and 
request for comments on [[Page 15924]] proposed guidelines (59 Fed. 
Reg. 66965). The comment period closed on January 27, 1995.

Discussion of Comments on Proposed Guidelines

    The FDIC received 24 comment letters on the proposed guidelines, 
including some after the close of the comment period. Fourteen were 
from depository institutions, four from trade associations, one from a 
State banking department, and five from other interested parties. The 
comments generally supported the proposed guidelines, although various 
suggestions and recommendations were made to revise the proposal. The 
following is a discussion of the comments received on the proposal, 
including those received after the close of the comment period.

A. Independent Appellate Process

    The Act requires the FDIC to establish an independent appellate 
process for the review of material supervisory determinations by an 
agency official who does not directly or indirectly report to the 
agency official who made the material supervisory determination under 
review. To satisfy this requirement, the FDIC proposed to establish a 
Supervision Appeals Review Committee consisting of the Vice Chairperson 
as chair of the Committee, the Director of the Division of Supervision, 
the Director of the Division of Compliance and Consumer Affairs, the 
Ombudsman, and the General Counsel (or their designees) to consider and 
decide appeals of material supervisory determinations.
    Several commenters expressed concern regarding the composition of 
the Committee, suggesting that a committee composed only of senior 
regulators lacks balance and cannot be fair and unbiased. The FDIC does 
not share this view and points out that a majority of the members of 
the Committee are not directly responsible for the FDIC's supervision 
or compliance activities and do not report to the individuals 
responsible for those activities. Moreover, the Committee would include 
the Ombudsman (who reports on all matters to the Chairperson) and the 
Vice Chairperson. The FDIC believes, however, that the inclusion of 
individuals who are knowledgeable and experienced in matters relating 
to the FDIC's supervision and compliance activities--the Directors of 
the Division of Supervision and the Division of Compliance and Consumer 
Affairs--would bring to the Committee the necessary experience and 
judgment to make well-informed decisions concerning determinations 
under review. The FDIC is confident that the members of the Committee 
can and will exercise their authority to review supervisory 
determinations in a responsible and unbiased manner. The FDIC believes 
that the long range interests of both the agency and the institutions 
it supervises are best served by assuring that all supervisory 
determinations (including appeals thereof) are as fair and accurate as 
possible.
    Several commenters suggested including on the Committee individuals 
from outside the FDIC, such as representatives of the banking community 
and other governmental agencies. The FDIC believes that the addition of 
individuals from outside the FDIC not only is unnecessary to assure 
that the appeals process is fair and unbiased but also would be 
inappropriate. The addition of such individuals to the Committee would 
not be consistent with the statutory mandate to establish an ``intra-
agency'' appeals process and could raise questions regarding the 
disclosure of records and other information contained in or related to 
examination, operating and other reports concerning an institution 
(which are generally exempt from public disclosure).
    The FDIC requested specific comment on whether the Vice Chairperson 
should be included as a member of the Committee, even if it would mean 
that occasionally he might need to recuse himself from participation in 
a related enforcement action. Specific comment was also requested on 
how the Committee might be structured if the Vice Chairperson were not 
included. As discussed in the notice of proposed guidelines, the Vice 
Chairperson may be involved in the consideration and disposition of 
enforcement proceedings before the Board of Directors which, on 
occasion, may involve matters considered by the Committee. While the 
FDIC believes that the inclusion of the Vice Chairperson on the 
Committee should lend credibility, fairness and balance to the appeals 
process, it recognizes that the Vice Chairperson's participation in an 
appeal of certain material supervisory determinations could give the 
Vice Chairperson access to information which may not be part of the 
administrative record of a factually related enforcement proceeding. 
Although such a situation is unlikely to occur, if it does occur it may 
be prudent for the Vice Chairperson to recuse himself from 
participation in the related enforcement proceeding. Of the commenters 
that addressed this aspect of the proposal, all supported including the 
Vice Chairperson on the Committee, even if it would mean that 
occasionally he might need to recuse himself from participation in a 
related enforcement action. Commenters generally agreed that inclusion 
of the Vice Chairperson on the Committee would lend credibility, 
fairness and balance to the process.
    One commenter suggested that the Committee has too much 
``horsepower'' and that its members may have other, more pressing 
matters to which they may need to attend. The FDIC is committed to 
establishing a fair and credible review process and believes that the 
proposed committee structure accomplishes that objective. The FDIC 
recognizes, however, that at times some members of the Committee may 
need to delegate their responsibility to serve on the Committee to a 
senior member of their staff but believes that this in no way should 
diminish the credibility, balance or fairness of the Committee or the 
process.
    In addition, many commenters expressed support for the proposed 
composition and structure of the Committee. After considering all of 
the comments on this aspect of the proposal, the FDIC continues to 
believe that the proposed composition and structure of the Committee 
not only satisfies the requirement of the Act to establish an 
independent intra-agency appellate process but also lends credibility, 
fairness and balance to the process. The FDIC therefore believes that 
no change to this provision is necessary.

B. Institutions Eligible To Appeal

    The Act requires that the FDIC's appeals process be available to 
review material supervisory determinations made at insured depository 
institutions that it supervises. The FDIC proposed that its appeals 
process be available not only to the insured depository institutions 
that it supervises (i.e., insured State nonmember banks (except 
District banks) and insured branches of foreign banks) but also to 
other insured depository institutions with respect to which it makes 
material supervisory determinations. No commenters addressed this 
aspect of the proposal. The FDIC therefore believes that no change to 
this provision is necessary.

C. Material Supervisory Determinations

    The Act requires the FDIC to establish an appeals process to review 
material supervisory determinations. The term ``material supervisory 
determinations'' is defined in the Act to include determinations 
relating to: (1) examination ratings; (2) the adequacy of 
[[Page 15925]] loan loss reserve provisions; and (3) loan 
classifications on loans that are significant to an institution. The 
Act specifically excludes from the definition of ``material supervisory 
determinations'' a decision to appoint a conservator or receiver for an 
insured depository institution or to take prompt corrective action 
pursuant to section 38 of the Federal Deposit Insurance Act, 12 U.S.C. 
1831o.
1. Examination Ratings
    The FDIC proposed to construe the reference to ``examination 
ratings'' to mean: (a) CAMEL ratings under the Uniform Financial 
Institutions Rating System; (b) EDP ratings under the Uniform 
Interagency Rating System for Data Processing Operations; (c) trust 
ratings under the Uniform Interagency Trust Rating System; (d) CRA 
ratings under the Revised Uniform Interagency Community Reinvestment 
Act Assessment Rating System; (e) consumer compliance ratings under the 
Uniform Interagency Consumer Compliance Rating System; (f) registered 
transfer agent examination ratings; (g) government securities dealer 
examination ratings; and (h) municipal securities dealer examination 
ratings.
    One commenter suggested that the proposed guidelines should be 
clarified to specifically reference the composite CAMEL rating (which 
is the rating revealed to an institution) as the rating eligible for 
appeal since component CAMEL ratings are not revealed to an 
institution. The FDIC believes that no change to this provision of the 
proposed guidelines is necessary. Since component ratings are not 
revealed to an institution, such ratings cannot be appealed regardless 
of whether there is a specific reference in the guidelines to composite 
ratings. The FDIC believes that the language of this provision is 
consistent with its intent to permit any examination rating revealed to 
an institution to be appealed.
2. Adequacy of Loan Loss Reserve Provisions
    Since the Act defines material supervisory determinations to 
include the adequacy of loan loss reserve provisions, the FDIC proposed 
that such determinations be eligible for appeal. No commenters 
addressed this aspect of the proposal. The FDIC therefore believes that 
no change to this provision is necessary.
3. Loan Classifications
    The Act defines material supervisory determinations to include 
determinations relating to loan classifications on loans that are 
significant to an institution. The FDIC proposed that classifications 
of other assets that are significant to an institution should also be 
eligible for appeal. In addition, the FDIC proposed that a classified 
loan or other asset could be regarded as significant to an institution 
if the amount of the loan or asset, individually or together with other 
classified loans or assets, equals or exceeds 10 percent of the 
institution's capital or 1 percent of its total assets.
    A number of commenters suggested that the proposed guidelines were 
not clear as to how the 10 percent of capital or 1 percent of assets 
threshold may be reached on an aggregated basis. A few commenters noted 
that, while a particular percentage may be significant for one 
institution, it may not be significant for another institution 
depending on the totality of the circumstances. Another commenter 
suggested that there should be an ability to appeal not merely where 
there is a specified percentage of the portfolio classified, but where 
any classification has an adverse impact on the institution. In 
consideration of the concerns expressed with respect to this aspect of 
the proposal, the proposal has been revised to eliminate the 1 percent 
of assets threshold and clarify that loan or other asset 
classifications in dispute, individually or together with other 
classified loans or assets in dispute, that exceed 10 percent of an 
institution's total capital may be appealed. The FDIC believes that 
capital is the more sensitive and critical measure and that such 
measure should enable an institution to appeal classifications that 
materially affect the institution. The FDIC further believes that 
limiting loan and other asset classification appeals to those that 
involve a significant level of classification (i.e., enough to be 
material) is necessary not only to discourage insignificant or 
unnecessary appeals but also to carry out the Act's intent that 
classifications that have a significant impact on an institution be 
eligible for appeal.
4. Determinations Not Eligible for Appeal
    As provided in the Act, the term ``material supervisory 
determinations'' does not include a decision to appoint a conservator 
or receiver for an insured depository institution or to take prompt 
corrective action pursuant to section 38 of the Federal Deposit 
Insurance Act, 12 U.S.C. 1831o. The FDIC proposed that the term 
``material supervisory determinations'' also should not include: (a) 
determinations for which other appeals procedures exist (such as 
determinations relating to deposit insurance assessment risk 
classifications); (b) decisions to initiate formal enforcement actions 
under section 8 of the Federal Deposit Insurance Act, 12 U.S.C. 1818 
(including assessment of civil money penalties); (c) decisions to 
initiate informal enforcement actions (such as memoranda of 
understanding); (d) determinations relating to a violation of a statute 
or regulation; and (e) any other determinations not specified in the 
Act as being eligible for appeal.
    A number of commenters suggested that these limitations were too 
restrictive and pointed out that the statutory listing of material 
supervisory determinations was merely illustrative and not intended to 
be exhaustive. They also noted that the proposals of the other banking 
agencies were not as restrictive as the FDIC's proposal. Upon further 
consideration of the relevant statutory language, the FDIC now believes 
that the proposal was unnecessarily restrictive as to the scope of 
determinations eligible for appeal. Consequently, the FDIC has expanded 
the scope of determinations that are eligible for appeal in two 
significant respects.
    First, determinations relating to a violation of a statute or 
regulation that may impact the capital, earnings, or operating 
flexibility of an institution, or otherwise affect the nature and level 
of supervisory oversight accorded an institution are eligible for 
appeal. The FDIC recognizes that interpretations of statutes or 
regulations frequently are the subject of differing views between 
examiners and the institution involved and such matters can have a 
material effect on the institution and the supervisory treatment 
accorded it. Review of such determinations is therefore consistent with 
the Act's goal of ensuring review of material supervisory 
determinations.
    Second, instead of specifically excluding determinations not 
specified in the Act as being ineligible for appeal, the FDIC has 
created a catch-all category of other material supervisory 
determinations that may be appealed. Such category includes any 
determination (unless otherwise not eligible for appeal) that may 
impact the capital, earnings, operating flexibility, or capital 
category for prompt corrective action purposes of an institution, or 
otherwise affect the nature and level of supervisory oversight accorded 
an institution.
    A number of commenters questioned the exclusion of decisions to 
initiate formal or informal enforcement actions from the scope of 
appealable determinations. A few commenters [[Page 15926]] recommended 
that at least decisions to initiate informal enforcement actions should 
be appealable. One commenter argued that, if a determination to 
initiate an informal enforcement action was eligible for appeal, an 
institution could avoid the cost and burden associated with such action 
while an appeal is pending that could be resolved in the institution's 
favor. While there is some merit to this view, the FDIC believes that 
the possible abuse of the appeals process to delay or otherwise impede 
well-founded enforcement actions outweighs the concerns expressed. 
Moreover, appeals will be processed and decided expeditiously which the 
FDIC believes should minimize any costs or other burdens to the 
institution associated with an informal enforcement action.
    One commenter questioned the exclusion of determinations relating 
to deposit insurance assessment risk classifications. The FDIC 
recognizes that such determinations may have a material impact on an 
institution but points out that it has procedures in place (which are 
set forth as an attachment to FIL-27-94, dated April 26, 1994) for 
requesting review of deposit insurance assessment risk classifications. 
Since the FDIC's role as deposit insurer is separate and distinct from 
its role as supervisor, it believes that review of determinations 
relating to deposit insurance assessment risk classifications should be 
kept separate from review of supervisory determinations. The FDIC 
believes that the current procedures for requesting review of deposit 
insurance assessment risk classifications are sufficient and that 
allowing parallel rights of appeal for such determinations would be 
confusing, duplicative, and wasteful.
    One commenter recommended that examiner criticisms of insider 
related matters should be eligible for appeal, even in those instances 
where small or no dollar amounts are involved. Since the appeals 
process is designed to allow institutions to appeal material 
supervisory determinations, the FDIC believes that insider related 
matters that qualify as material supervisory determinations should be 
eligible for appeal while those matters that do not qualify should not 
be eligible for appeal.
    A few commenters suggested that the provision in the proposed 
guidelines regarding determinations not eligible for appeal be revised 
to clarify that the underlying basis for a determination to take prompt 
corrective action or initiate a formal or informal enforcement action 
is appealable so long as it otherwise qualifies. The FDIC does not 
intend to exclude from the appeals process such underlying 
determinations so long as they are eligible for appeal. Based on these 
comments, the FDIC has revised the proposal to clarify this issue.

D. Authority To Initiate Appeal

    The FDIC proposed that an institution should not be permitted to 
initiate an appeal of a material supervisory determination unless its 
board of directors considered the merits of the appeal and authorized 
that it be filed. This requirement was intended to assure that an 
institution's board of directors not only had knowledge of a possible 
appeal but also had an opportunity to consider its merits. The FDIC 
noted in the proposed guidelines that such involvement by the board of 
directors in the decision to initiate an appeal is consistent with its 
responsibility to oversee the institution's management and may 
discourage insignificant or unnecessary appeals. No commenters were 
critical of this requirement. However, one commenter expressly stated 
that such requirement should eliminate any frivolous appeals brought 
because of a personality conflict between a senior officer and an 
examiner. The FDIC therefore believes that no change to this aspect of 
the proposal is necessary.

E. Effect on Supervisory or Enforcement Actions

    Section 309(g) of the Act provides that ``[n]othing in ... section 
[309] shall affect the authority of an appropriate Federal banking 
agency or the National Credit Administration Board to take enforcement 
or supervisory action.'' To reiterate this mandate as well as to 
discourage any possible abuse of the appeals process, the FDIC proposed 
that use of the appeals process by any institution should not affect, 
delay, or impede any formal or informal supervisory or enforcement 
action in progress or affect the FDIC's authority to take any 
supervisory or enforcement action against an institution.
    No commenters directly addressed this aspect of the proposal. 
However, one commenter questioned whether there would be any adverse or 
prejudicial effect on an institution involved in a formal enforcement 
proceeding for failure to file an appeal of a related matter. That 
commenter also questioned the extent to which a final decision made by 
the Supervision Appeals Review Committee may be subject to collateral 
attack or review by an administrative law judge in an administrative 
enforcement action. The FDIC believes that the appeal process is not 
intended to affect the rights of parties in connection with enforcement 
proceedings.

F. Effect on Applications or Requests for Approval

    The FDIC proposed that any application or request for approval made 
to the FDIC by an institution that has appealed a material supervisory 
determination which relates to or could affect the approval of the 
application or request would not be considered until a final decision 
concerning the appeal was made unless otherwise requested by the 
institution. No commenters addressed this aspect of the proposal. The 
FDIC therefore believes that no change to this provision is necessary.

G. Scope of Review

    The FDIC proposed that the appropriate scope of review of any 
material supervisory determination should be limited to the facts and 
circumstances as they existed prior to or at the time the material 
supervisory determination was made and that consideration should not be 
given to any facts or circumstances that occur or corrective action 
taken after the determination was made. No commenters questioned this 
limitation, although one commenter requested that the proposed 
guidelines be clarified to provide that the FDIC will consider facts 
and circumstances that existed at the time the determination was made 
but that may have been discovered or come to the attention of the FDIC 
or the institution after such determination. The FDIC believes that 
this is a useful clarification and has revised the proposed guidelines 
accordingly. However, the FDIC cautions institutions not to introduce 
or present information or arguments for the first time on appeal which 
could have been introduced or presented to the on-site examiner and/or 
appropriate Regional Office. While such information or arguments will 
be considered on appeal, the introduction of such information or 
arguments at a late date could impede the prompt and expeditious 
resolution of disputes.

H. Review Procedures

    The FDIC proposed that an institution could appeal any material 
supervisory determination but it first should make a good faith effort 
to resolve the dispute concerning the determination with the on-site 
examiner and/or the appropriate Regional Office. The proposed 
guidelines would have required that the on-site examiner and the 
Regional Office promptly respond to any concerns raised by an 
institution regarding a material supervisory determination. Several 
commenters [[Page 15927]] incorrectly understood this provision to mean 
that an institution must first attempt to resolve any disputed 
determination with the on-site examiner and/or the appropriate Regional 
Office before it may file an appeal. While the proposed guidelines 
would have encouraged informal resolution of disputes, it was not 
intended to make informal resolution a condition to the filing of an 
appeal with the Washington Office. The FDIC therefore has revised the 
proposed guidelines to make this clear.
    The FDIC reiterated in the proposed guidelines that codification of 
this appeals process was not intended to affect its longstanding 
practice of affording institutions opportunities to express their views 
and concerns throughout the examination/supervisory process. 
Institutions are encouraged to discuss examination findings, loan loss 
reserve provisions and classifications on loans and other assets during 
on-site examinations as well as express any concerns to senior staff of 
the appropriate Regional Office if a matter has not been resolved by 
the on-site examiner. The FDIC continues to believe that an institution 
is best served by raising questions or objections concerning an 
examination when they arise through these informal processes rather 
than after the close of an examination and the filing of an appeal.
    The proposed guidelines would have required all appeals to the 
Washington Office to be initiated within 60 days following the 
institution's receipt of a report of examination containing a material 
supervisory determination or other written communication of a material 
supervisory determination. A few commenters suggested that the time 
period in which an institution could file an appeal should be 
shortened, while others suggested a longer period. However, one 
commenter stated that the proposed time period was appropriate. The 
FDIC has reconsidered this issue but, given the time necessary for an 
institution to review findings, prepare a written appeal and obtain 
board approval, continues to believe that the proposed time period is 
appropriate.
    To initiate an appeal, the FDIC proposed that the institution would 
have to submit, in writing, to the Director of the Division of 
Supervision, if the dispute was with a Division of Supervision on-site 
examiner or Regional Office, or to the Director of the Division of 
Compliance and Consumer Affairs, if the dispute was with a Division of 
Compliance and Consumer Affairs on-site examiner or Regional Office, a 
request for review. The request for review would have been required to 
include: (a) a detailed description of the issues in dispute, the 
surrounding circumstances, the institution's position regarding the 
dispute and any arguments to support that position, and any good faith 
effort to resolve the dispute with the on-site examiner and the 
Regional Office and the results of that effort; and (b) a statement 
that the institution's board of directors has considered the merits of 
the appeal and authorized that it be filed. No commenters addressed 
this aspect of the proposal. The FDIC therefore believes that no change 
to this provision is necessary, other than to require that the request 
for review include (in addition to the information listed in the 
proposed guidelines) citation of any relevant statute, regulation, 
policy statement or other authority to support the institution's 
position regarding the dispute and how resolution of the dispute would 
impact the institution and why such impact would be material.
    The FDIC further proposed that the appropriate Division Director 
could, in his or her discretion, promptly resolve the appeal in favor 
of the institution or, if he or she could not resolve the appeal in 
favor of the institution, must refer the appeal to the Supervision 
Appeals Review Committee, together with the institution's request for 
review and any other relevant information concerning the dispute. The 
Supervision Appeals Review Committee (which was proposed to be 
comprised of the Vice Chairperson, the Director of the Division of 
Supervision, the Director of the Division of Compliance and Consumer 
Affairs, the Ombudsman, and the General Counsel (or their designees)) 
would have reviewed the appeal for consistency with the policies, 
practices and mission of the FDIC, including those of the Division of 
Supervision or the Division of Compliance and Consumer Affairs, as 
appropriate, and the overall reasonableness of and support offered for 
the respective positions advanced, and notify the institution, in 
writing, of its decision concerning the disputed material supervisory 
determination within 60 days of receipt by the appropriate Division 
Director of the institution's request for review. The proposed 
guidelines would have required that the notice of decision contain at a 
minimum an explanation of the factual basis as well as the reason(s) 
for the decision and a statement that the decision constitutes the 
final supervisory decision of the FDIC.
    A few commenters suggested that the time period in which the FDIC 
must consider and decide an appeal should be shortened. However, given 
the time necessary to fully and fairly review an appeal and convene a 
meeting of the Supervision Review Appeals Committee, the FDIC continues 
to believe that the proposed time period is appropriate. One commenter 
suggested that the proposal be revised to provide an institution with 
the right to request an appearance before the Supervision Appeals 
Review Committee to present evidence or otherwise support its position. 
The FDIC agrees that an institution should have the right to request an 
appearance before the Committee to present evidence or otherwise 
support its position but believes that the Committee should have the 
discretion, depending on the facts and circumstances of the 
determination under appeal and whether such appearance would be 
productive, to determine whether to allow such appearance.
    The proposed guidelines would have required that, if sufficient 
information was not provided to enable the Supervision Appeals Review 
Committee to make a decision concerning the disputed material 
supervisory determination, the 60-day period within which the Committee 
must notify the institution of its decision would be extended upon 
agreement of the institution for such additional time as it would take 
the institution to provide the information requested by the Committee. 
If the institution failed to provide the requested information, the 
Committee could (but would not have been required to) consider and 
decide the appeal on the information available. One commenter suggested 
that this provision was unclear. The FDIC believes that this provision 
is straightforward but explains that it was intended to allow the 
Committee to extend the time in which it must issue a decision in order 
to request and receive additional information from the institution. 
Under the proposal, the institution could refuse to agree to the delay 
or to provide the additional information, in which case the Committee 
could decide the appeal on the existing record or consider the appeal 
abandoned.
    The FDIC proposed that the decision of the Supervision Appeals 
Review Committee would constitute the final supervisory decision of the 
FDIC and would not be eligible for further appeal pursuant to the 
FDIC's appeals process unless new information was submitted. In such 
case, the Committee could, in its discretion, reconsider the decision 
concerning the disputed material supervisory determination if good 
cause was shown why such new information [[Page 15928]] was material to 
the dispute. No commenters directly addressed this aspect of the 
proposal.
    A few commenters suggested that an institution's position with 
respect to a determination under review should prevail if the FDIC 
fails to notify the institution of its decision within 60 days of 
receipt by the appropriate Division Director of the institution's 
request for review. The FDIC believes that appeals should be decided on 
their merits and not as a result of a failure to meet a time deadline. 
Nevertheless, the FDIC pledges to make every effort to decide an appeal 
and notify the institution of its decision within the 60-day time 
period. If, however, the institution believes that the FDIC has not 
acted in good faith to decide an appeal and notify the institution of 
its decision within this time period, it may request that the Ombudsman 
investigate or otherwise intervene in the matter.
    One commenter suggested that the proposed guidelines be revised to 
address how records are to be expunged when a determination (that is 
part of an examination report or other written communication) is 
subsequently reversed through the appeals process. The FDIC is not 
convinced that a determination which is reversed through the appeals 
process needs to be expunged from the record. The FDIC believes that 
there is little risk that a subsequent reviewer of the institution's 
record will overlook the reversal and consider the determination as 
part of the record in its dealings with the institution.

I. Limitation of Use of Agency Ombudsman

    Section 309(d) of the Act requires the FDIC to appoint an Ombudsman 
to act as a liaison with respect to any problem that any person may 
have in dealing with the FDIC resulting from its regulatory activities. 
The FDIC proposed that, in order to preserve the integrity of the 
appeals process, the merits of any material supervisory determination 
for which an appeal had been initiated or a final decision made should 
not be eligible for consideration by the Ombudsman. The FDIC also 
proposed, however, that the Ombudsman should not be prohibited from 
considering any other problems that an institution may have in dealing 
with the FDIC in connection with its appeals process, including 
consideration of the overall fairness, efficiency or effectiveness of 
the process.
    A few commenters suggested that the Ombudsman should have the 
opportunity to consider and decide appeals outside the structure of the 
Supervision Appeals Review Committee. The FDIC believes that a 
committee approach, which brings together the experience and judgment 
of a variety of individuals from different disciplines (including the 
Ombudsman), is more likely to produce fair and sound results for both 
the institution involved and the FDIC than a process in which a single 
individual (such as the Ombudsman) alone considers and decides appeals. 
Moreover, as a member of the Supervision Appeals Review Committee, the 
Ombudsman will consider and participate in all appeals.

J. Coordination With State Regulatory Authorities

    Two commenters suggested that the proposed guidelines should be 
revised to require that the FDIC coordinate with the appropriate State 
regulatory authority with respect to the appeal of a material 
supervisory determination that is the joint product of the FDIC and the 
State regulatory authority. These commenters also suggested that a 
representative of the appropriate State regulatory authority should sit 
on the Supervision Appeals Review Committee. The FDIC believes that 
such coordination is necessary but does not believe that a 
representative of the appropriate State regulatory authority should sit 
on the Committee. The FDIC believes that the inclusion of a 
representative of a State regulatory authority on the Committee would 
not be consistent with the statutory mandate to establish an ``intra-
agency'' appeals process. However, to provide for coordination with 
State regulatory authorities with respect to the appeal of a joint 
material supervisory determination, the FDIC has revised the proposal 
to specifically require that the appropriate Division Director promptly 
notify the appropriate State regulatory authority of any appeal of a 
joint supervisory determination as well as to provide the regulatory 
authority with a copy of the institution's request for review and any 
other related materials and solicit the regulatory authority's views 
regarding the merits of the appeal before making a final decision. That 
Director will present the views of the regulatory authority (as well as 
his or her own views) before the Committee and attempt to reconcile the 
views of the regulatory authority with the views of the Committee. The 
Committee will notify the institution and the State regulatory 
authority of its decision and any differences remaining between the 
institution and the State authority will be left to those parties to 
resolve.

K. Prohibition on Examiner Retaliation

    The FDIC proposed that any retaliation, abuse, or retribution by an 
agency examiner against an institution that appeals a material 
supervisory determination would constitute unprofessional conduct and 
should subject the examiner to appropriate disciplinary or remedial 
action by the appropriate Division Director. Under the proposed 
guidelines, such disciplinary or remedial action could have included 
oral or written warning or admonishment, reprimand, or suspension, or 
change in assigned duties or disqualification from a particular 
assignment or a particular matter, including prohibition from 
participating in any examination of the institution that was the 
subject of the retaliation, abuse, or retribution.
    A few commenters suggested that the proposed guidelines be 
clarified to provide who an institution may contact in the event it 
believes or has any evidence that it has been subject to examiner 
retaliation. Other commenters suggested that the role of the Ombudsman 
should be expanded to include receiving, monitoring, and investigating 
complaints of examiner retaliation. The FDIC believes that the 
Ombudsman should be permitted to receive and investigate complaints of 
examiner retaliation as well as make recommendations to the appropriate 
Division Director for corrective action. The FDIC therefore has revised 
the proposed guidelines to provide that any institution that believes 
or has any evidence that it has been subject to examiner retaliation 
may file a complaint with the Ombudsman and/or the appropriate Division 
Director, Federal Deposit Insurance Corporation, 550 17th Street, 
Washington, D.C. 20429, explaining the circumstances and the basis for 
such belief or evidence and requesting that the complaint be 
investigated and appropriate disciplinary or remedial action taken.
    Other commenters suggested that the FDIC should contact every 
institution that files an appeal at various intervals after the appeal 
to inquire as to whether the institution believes or has any evidence 
that it has been subject to examiner retaliation. The FDIC does not 
believe that routine follow-up inquiries would be useful or productive 
in every case in which an institution has filed an appeal. 
Consequently, the FDIC will rely on complaints of examiner retaliation 
that it receives from institutions to monitor and investigate such 
activity.
    One commenter suggested that the prohibition against examiner 
retaliation should be extended to cover all Regional 
[[Page 15929]] Office personnel. The FDIC believes that retaliation by 
any employee at any level constitutes unprofessional conduct and should 
subject the employee to appropriate disciplinary or remedial action. 
Accordingly, the FDIC has revised the proposed guidelines to make clear 
that the prohibition on retaliation extends to all personnel, including 
Regional and Washington Office personnel.
    For the reasons set out in the Preamble, the Board has adopted the 
Guidelines for Review of Material Supervisory Determinations as set 
forth below.

Guidelines for Appeals of Material Supervisory Determinations

A. Introduction

    Section 309(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) (Act) 
requires the Federal Deposit Insurance Corporation (FDIC) to establish 
an independent intra-agency appellate process to review material 
supervisory determinations made at insured depository institutions that 
it supervises. The FDIC has adopted these Guidelines for Appeals of 
Material Supervisory Determinations (Guidelines) in accordance with the 
Act. The Guidelines describe the types of determinations that are 
eligible for review and the process by which appeals will be considered 
and decided.

B. Independent Appellate Process

    The procedures set forth in these Guidelines establish an appeals 
process for the review of material supervisory determinations by a 
supervisory appeals review committee consisting of the Vice 
Chairperson, the Director of the Division of Supervision, the Director 
of the Division of Compliance and Consumer Affairs, the Ombudsman, and 
the General Counsel (or their designees).

C. Institutions Eligible to Appeal

    These Guidelines apply not only to the insured depository 
institutions that the FDIC supervises (i.e., insured State nonmember 
banks (except District banks) and insured branches of foreign banks) 
but also to other insured depository institutions with respect to which 
the FDIC makes material supervisory determinations.

D. Material Supervisory Determinations

1. Determinations Eligible for Appeal
    An institution may appeal any material supervisory determination 
pursuant to the procedures set forth in these Guidelines. Material 
supervisory determinations mean:
    (a) CAMEL ratings under the Uniform Financial Institutions Rating 
System;
    (b) EDP ratings under the Uniform Interagency Rating System for 
Data Processing Operations;
    (c) trust ratings under the Uniform Interagency Trust Rating 
System;
    (d) CRA ratings under the Revised Uniform Interagency Community 
Reinvestment Act Assessment Rating System;
    (e) consumer compliance ratings under the Uniform Interagency 
Consumer Compliance Rating System;
    (f) registered transfer agent examination ratings;
    (g) government securities dealer examination ratings;
    (h) municipal securities dealer examination ratings;
    (i) determinations relating to the adequacy of loan loss reserve 
provisions;
    (j) classifications of loans and other assets in dispute the amount 
of which, individually or in the aggregate, exceed 10 percent of an 
institution's total capital;
    (k) determinations relating to violations of a statute or 
regulation that may impact the capital, earnings, or operating 
flexibility of an institution, or otherwise affect the nature and level 
of supervisory oversight accorded an institution; and
    (l) any other supervisory determination (unless otherwise not 
eligible for appeal) that may impact the capital, earnings, operating 
flexibility, or capital category for prompt corrective action purposes 
of an institution, or otherwise affect the nature and level of 
supervisory oversight accorded an institution.
2. Determinations Not Eligible for Appeal
    Material supervisory determinations do not include: (a) decisions 
to appoint a conservator or receiver for an insured depository 
institution; (b) decisions to take prompt corrective action pursuant to 
section 38 of the Federal Deposit Insurance Act, 12 U.S.C. 1831o; (c) 
determinations for which other appeals procedures exist (such as 
determinations relating to deposit insurance assessment risk 
classifications); (d) decisions to initiate formal enforcement actions 
under section 8 of the Federal Deposit Insurance Act, 12 U.S.C. 1818 
(including assessment of civil money penalties) or under any other 
provisions of law or regulation; and (e) decisions to initiate informal 
enforcement actions (such as memoranda of understanding). The FDIC 
recognizes that, although determinations to take prompt corrective 
action or initiate formal or informal enforcement actions are not 
appealable, the determinations upon which such actions may be based 
(e.g., loan classifications) are appealable provided they otherwise 
qualify.

E. Authority to Initiate Appeals

    An institution may not initiate an appeal of a material supervisory 
determination pursuant to the procedures set forth in these Guidelines 
unless its board of directors has considered the merits of the appeal 
and authorized that it be filed.

F. Effect on Supervisory or Enforcement Actions

    The use of the procedures set forth in these Guidelines by any 
institution will not affect, delay, or impede any formal or informal 
supervisory or enforcement action in progress or affect the FDIC's 
authority to take any supervisory or enforcement action against that 
institution.

G. Effect on Applications or Requests for Approval

    Any application or request for approval made to the FDIC by an 
institution that has appealed a material supervisory determination 
which relates to or could affect the approval of the application or 
request will not be considered until a final decision concerning the 
appeal is made unless otherwise requested by the institution.

H. Scope of Review

    The scope of review of any material supervisory determination 
pursuant to the procedures set forth in these Guidelines is limited to 
the facts and circumstances as they existed prior to or at the time the 
material supervisory determination was made and no consideration will 
be given to any facts or circumstances that occur or corrective action 
taken after the determination was made. However, the FDIC will consider 
any facts or circumstances that existed prior to or at the time the 
determination was made but that may have been discovered or come to the 
attention of the FDIC or the institution after such determination.

I. Review Procedures

    An institution may appeal any material supervisory determination 
but it first should make a good faith effort to resolve the dispute 
concerning the determination with the on-site examiner and/or the 
appropriate Regional Office. The on-site examiner and the Regional 
Office are expected to promptly respond [[Page 15930]] to any concerns 
raised by an institution regarding a material supervisory 
determination. If an institution is unable to resolve the dispute with 
the on-site examiner or the Regional Office, it may appeal the 
determination to the Washington Office. While informal resolution of 
disputes is encouraged, it is not a condition to the filing of an 
appeal with the Washington Office.
    All appeals to the Washington Office must be initiated within 60 
days following the institution's receipt of a report of examination 
containing a material supervisory determination or other written 
communication of a material supervisory determination. To initiate an 
appeal, the institution must submit, in writing, to the Director of the 
Division of Supervision, if the institution was unable to resolve the 
dispute with a Division of Supervision on-site examiner or Regional 
Office, or to the Director of the Division of Compliance and Consumer 
Affairs, if the institution was unable to resolve the dispute with a 
Division of Compliance and Consumer Affairs on-site examiner or 
Regional Office, a request for review. The request for review should 
include: (a) a detailed description of the issues in dispute, the 
surrounding circumstances, the institution's position regarding the 
dispute and any arguments to support that position (including citation 
of any relevant statute, regulation, policy statement or other 
authority), how resolution of the dispute would impact the institution 
and why such impact would be material, and the good faith effort to 
resolve the dispute with the on-site examiner and the Regional Office 
and the results of that effort; and (b) a statement that the 
institution's board of directors has considered the merits of the 
appeal and authorized that it be filed.
    The appropriate Division Director may, in his or her discretion, 
promptly resolve the appeal in favor of the institution or, if he or 
she cannot resolve the appeal in favor of the institution, will refer 
the appeal to the Supervision Appeals Review Committee, together with 
the institution's request for review and any other relevant information 
concerning the dispute. The Supervision Appeals Review Committee (which 
is comprised of the Vice Chairperson, the Director of the Division of 
Supervision, the Director of the Division of Compliance and Consumer 
Affairs, the Ombudsman, and the General Counsel (or their designees)) 
will review the appeal for consistency with the policies, practices and 
mission of the FDIC, including those of the Division of Supervision or 
the Division of Compliance and Consumer Affairs, as appropriate, and 
the overall reasonableness of and the support offered for the 
respective positions advanced, and notify the institution, in writing, 
of its decision concerning the disputed material supervisory 
determination within 60 days of receipt by the appropriate Division 
Director of the institution's request for review. The notice of 
decision must contain at a minimum an explanation of the factual basis 
as well as the reason(s) for the decision and a statement that the 
decision constitutes the final supervisory decision of the FDIC.
    The institution may request an appearance before the Supervision 
Appeals Review Committee to present evidence or otherwise support its 
position. The Committee may in its discretion, depending on the facts 
and circumstances of the determination under appeal and whether such 
appearance would be productive, determine whether to allow such 
appearance.
    If sufficient information is not provided to enable the Supervision 
Appeals Review Committee to make a decision concerning the disputed 
material supervisory determination, the 60-day period within which the 
Committee must notify the institution of the decision will be extended 
upon agreement of the institution for such additional time as it takes 
the institution to provide the information requested by the Committee. 
If the institution fails to provide the requested information, the 
Committee may but will not be required to consider and decide the 
appeal. Moreover, if the FDIC fails to notify the institution of its 
decision within 60 days of receipt by the appropriate Division Director 
of the institution's request for review, the institution may request 
that the Ombudsman investigate or otherwise intervene in the matter.
    The decision of the Supervision Appeals Review Committee will 
constitute the final supervisory decision of the FDIC and will not be 
eligible for further appeal pursuant to the procedures set forth in 
these Guidelines unless new information is submitted. In such case, the 
Committee may, in its discretion, reconsider the decision concerning 
the disputed material supervisory determination if good cause is shown 
why such new information is material to the dispute.

J. Limitation on Use of Agency Ombudsman

    The merits of any material supervisory determination for which an 
appeal has been initiated or a final decision made will not be eligible 
for consideration by the Ombudsman (except in his or her capacity as a 
member of the Supervision Appeals Review Committee). Any other 
problems, however, that an institution may have in dealing with the 
FDIC in connection with the procedures set forth in these Guidelines 
are eligible for consideration by the Ombudsman, including 
consideration of the overall fairness, efficiency or effectiveness of 
the process.

K. Coordination With State Regulatory Authorities

    In the event that a material supervisory determination under appeal 
is the joint product of the FDIC and a State regulatory authority, the 
appropriate Division Director will promptly notify the appropriate 
State regulatory authority of the appeal, provide to the regulatory 
authority a copy of the institution's request for review and any other 
related materials, and solicit the regulatory authority's views 
regarding the merits of the appeal before making a final decision. That 
Director will present the views of the regulatory authority (as well as 
his or her own views) before the Supervision Appeals Review Committee 
and attempt to reconcile the views of the regulatory authority with the 
views of the Supervision Appeals Review Committee. The Supervision 
Appeals Review Committee will notify the institution and the State 
regulatory authority of its decision and any differences remaining 
between the institution and the State authority will be left to those 
parties to resolve.

L. Prohibition on Examiner Retaliation

    Any retaliation, abuse, or retribution by an agency examiner or any 
FDIC personnel against an institution that appeals a material 
supervisory determination constitutes unprofessional conduct and will 
subject the examiner or other personnel to appropriate disciplinary or 
remedial action by the appropriate Division Director. Such disciplinary 
or remedial action may include oral or written warning or admonishment, 
reprimand, or suspension, or change in assigned duties or 
disqualification from a particular assignment or a particular matter, 
including prohibition from participating in any examination of the 
institution that was the subject of the retaliation, abuse, or 
retribution. Any institution that believes or has any evidence that it 
has been subject to retaliation may file a complaint with the Ombudsman 
and/or the appropriate Division Director, Federal Deposit Insurance 
Corporation, 550 17th Street, [[Page 15931]] Washington, D.C. 20429, 
explaining the circumstances and the basis for such belief or evidence 
and requesting that the complaint be investigated and appropriate 
disciplinary or remedial action taken.

    By order of the Board of Directors.

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

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Acting Executive Secretary.
[FR Doc. 95-7523 Filed 3-27-95; 8:45 am]
BILLING CODE 6714-01-P

Last Updated 07/17/1999 communications@fdic.gov