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Deposit Insurance Assessment Appeals: Guidelines & Determinations

[Federal Register: March 28, 1995 (Volume 60, Number 59)]
[Notices]              
[Page 15923-15931]

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FEDERAL DEPOSIT INSURANCE CORPORATION

Intra-Agency Appellate Process

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of guidelines.

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

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

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 06/30/2005 Legal@fdic.gov